Apple Reports Record 1Q Profit

Apple Inc. on Wednesday posted a record profit in its fiscal first quarter, beating Wall Street estimates as earnings rose 78 percent amid strong holiday sales of its iPod music players and Macintosh computers.

Investor enthusiasm over the blowout quarter, however, was curbed by a second-quarter outlook that fell below analyst expectations. Apple officials said the March quarter forecast partly stems from expectations of slightly lower gross margins and slower software sales ahead of the company's spring release of its upgrade to the Mac OS X operating system, dubbed Leopard.

During the final three months of 2006, the Cupertino-based company Apple said it earned $1 billion, or $1.14 per share, compared to $565 million, or 65 cents a share, in the year-ago period.

Revenue for the quarter hit a record, reaching $7.1 billion, up 24 percent from $5.7 billion the previous year.

Analysts, on average, were expecting earnings of 78 cents per share on sales of $6.42 billion, according to a Thomson Financial survey.

"This one was for the record books," Apple Chief Financial Officer Peter Oppenheimer said in an interview.

Apple shipped 1.6 million Macs and more than 21 million iPods during the quarter, representing a growth of 28 percent and 50 percent respectively from the year-ago holiday season.

That's an iPod sold for nearly every Texan. Sales of the iconic device accounted for $3.43 billion, or nearly half, of the company's total revenue.

Mac sales continued to be strong, Oppenheimer said, with a growth rate that was three times higher than the PC industry's during the quarter. The IDC market research firm also reported Wednesday that Apple's share of the PC market in the U.S. had grown to 4.7 percent in the quarter, up from 3.6 percent a year ago.

Still, shares of Apple lost $2.15 to close at $94.95 on the Nasdaq Stock Market as technology stocks in general tumbled. In extended trading following its report, Apple shares initially jumped by about 4.5 percent then declined by 1 percent to $94.

Apple forecast fiscal second-quarter revenue of $4.8 billion to $4.9 billion and earnings per share of 54 cents to 56 cents. Analysts had projected revenues of $5.22 billion and earnings per share of 60 cents, according to Thomson Financial.

Apple is one of the most prominent among dozens of companies facing scrutiny over its past accounting of stock options but Wall Street has largely shrugged off the matter.

Last week, federal prosecutors confirmed that they had opened an investigation into stock options irregularities at Apple, including an award granted to CEO Steve Jobs that carried a false October 2001 date when it was actually approved in December of that year.

Apple's own internal probe last year had disclosed that discrepancy, among thousands of other mishandled grants. The company, however, said its probe exonerated Jobs and any current management from any wrongdoing, while raising "serious concerns" about the actions of two former officers.

Investors remain optimistic about Apple's future as it reinvents itself as a consumer electronics company. It even changed its name last week -- from Apple Computer Inc. to just Apple Inc. -- to better reflect its broadening portfolio beyond computer products.

Apple introduced the iPhone last week, a cell phone combined with its iPod media player, Internet browsing and e-mail capabilities. The unveiling of the long-anticipated phone, which will be distributed exclusively through AT&T's Cingular Wireless starting in June, drove Apple's shares to briefly reach an all-time high of $97.80 during trading before closing up 4.79 percent at $97 that day.

Apple also unveiled Apple TV, a new set-top box that sends video from computers to the television.

"We are incredibly pleased to report record quarterly revenue of over $7 billion and record earnings of $1 billion," Jobs said in a statement. "We've just kicked off what is going to be a very strong new product year for Apple by launching Apple TV and the revolutionary iPhone."

Apple said it expects the iPhone to sell about 10 million units in 2008, but some analysts are questioning how well the $500 phone would fare in the highly competitive mobile phone market.

"Apple is clearly at the top of its game right now," said analyst Samir Bhavnani at Current Analysis.

Cisco Systems Inc., which owns the "iPhone" trademark, has sued Apple, alleging infringement, but Apple officials don't seem a bit worried.

Apple's chief operating officer, Tim Cook, called the lawsuit "silly" during a conference call with analysts and noted how several companies use the same iPhone name for their Internet-based phones.

"We believe that Cisco's U.S. trademark registration is tenuous at best," Cook said. "We are the first company to ever use the iPhone name for a cell phone, and if Cisco wants to challenge us, we're confident we'll prevail."


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