October 15, 2003 3:56 PM PDT

Sales boost Apple earnings

Buoyed by a rise in sales from a year ago, Apple Computer posted fourth-quarter earnings that narrowly topped expectations.

The Mac maker posted a net income of $44 million, or 12 cents per share, on revenue of $1.7 billion, for the three months ended Sept. 27. That compares with a net loss of $45 million, or 13 cents per share, on revenue of $1.4 billion in the same quarter a year ago.

Excluding a $6 million after-tax investment gain, a favorable accounting adjustment of $3 million that's related to Apple's stock repurchase efforts and other one-time items, Apple said the company would have posted earnings of $29 million, or 8 cents per share. Analysts were expecting earnings of 7 cents per share, according to First Call.

In July, Apple forecast that sales for the just-ended quarter would show a percentage increase in the "high single digits" compared with the June quarter, although profits would rise only slightly from the $19 million the company earned that quarter.

"It was a great new product quarter for Apple," company CEO Steve Jobs said in a statement. "We launched the Power Mac G5, the fastest personal computer in the world, new PowerBooks and new iPods. Plus, we're delivering Panther, the next major release of Mac OS X, later this month, and we'll have some exciting news regarding our music efforts tomorrow."

For the current quarter, Apple Chief Financial Officer Fred Anderson predicted an increase in revenue to about $1.9 billion along with a slight sequential increase in earnings.

The company's report comes a day before an Apple press conference in which the Mac maker is expected to announce a Windows version of its iTunes Music Store as well as other possible enhancements to its line of music products. The company also has said the new version of its operating system, Mac OS X 10.3 Panther, will go on sale next week for $129.

In the quarter, Apple said it shipped 787,000 Macintoshes, up 7 percent from the year-ago quarter, along with 336,000 iPods, a 140 percent increase in unit sales since last year.

Apple said it sold $279 million worth of iMacs, down 7 percent from the prior quarter and 25 percent from a year ago. Sales of the iBook totaled $154 million, down 21 percent from the earlier quarter and 34 percent from a year ago. Power Mac sales, buoyed by the introduction of the Power Mac G5, rose to $419 million, up 79 percent from the prior quarter and 21 percent from a year earlier. PowerBook sales were $348 million, down 4 percent from the third quarter but up 145 percent from a year ago.

Sales of the iPod generated $121 million in revenue, up 9 percent from the prior quarter and 128 percent from a year ago. Sales of peripherals and other hardware totaled $217 million, while software and other items produced a revenue of $177 million.

Although he did not offer a specific forecast, Anderson said the pickup in Power Mac sales is more than just a blip.

"I think we can sustain it above 200,000 (units) a quarter," Anderson said on a conference call with analysts. "We believe we are very well poised for a strong upgrade cycle from our professional customers."

Meanwhile, sales to education customers, which had picked up in the April-June quarter, were weaker in the September quarter, Anderson said. The weakness stemmed from a marked slowdown in spending by K-12 schools, he said.

Anderson said the deceleration in school spending was likely not unique to Apple, and he said he did not expect that the company lost much ground to rivals. "It's our hope and expectation that we pretty much held market share," Anderson said.

On a more positive note, Anderson said higher-education sales were the best in seven years, spurred by a rise in college students buying Macs, as well as institutional interest in the Power Mac G5.

Still, Anderson said, the pickup in higher-education sales "wasn't enough to make up for the weakness during the quarter of K-12."

Anderson also told analysts that the company is looking to expand the store-within-a-store retail concept it uses at CompUSA and elsewhere. He said the company is "looking for expansion opportunities" around the world but that it is too soon to say whether Apple will expand a pilot project with Best Buy, which is carrying Macs in 48 of its stores. That program started about two months ago.

The company declined to give an update on the amount of music downloads it has sold via its iTunes music store, with Anderson saying he would leave that to Jobs, who is speaking at Apple's event Thursday.

"We're just extremely pleased," Anderson said. He acknowledged that both Apple's music store and the iPod will see more competition from rivals but said Apple will keep its technological lead in both areas. "It's true there is a lot of competition coming," he said.

 

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