Apple profit soars but iPod sales miss estimates

By Duncan Martell on Oct 12, 2005 11:04 AM
Filed under Finance

Apple Computer this week reported a quarterly profit that quadrupled, but sales of its market-leading iPod digital music player fell short of many analyst estimates.

SAN FRANCISCO - Apple Computer on Tuesday reported a quarterly profit that quadrupled, but sales of its market-leading iPod digital music player fell short of many analyst estimates.

Apple sold 6.5 million iPods in the quarter, more than triple a year ago, but some analysts targeted sales of 8 million.

"Expectations for Apple's results were pretty high," said Jim Fisher, a fund manager at Univest Wealth Management, who owns Apple shares. "Revenue came a bit lower than expected...."

Still, the company posted record revenues and net profits for its fourth quarter and the full year. Apple has now sold more than 28 million iPods since their introduction in 2001.

"We're thrilled to have concluded the best year in Apple's history," chief executive Steve Jobs said.

The earnings report also comes ahead of a Wednesday Apple announcement. An iPod that plays video is widely expected to be unveiled.

Apple net income for the fiscal fourth quarter ended 24 September rose to US$430 million, or 50 US cents a share, from US$106 million, or 13 US cents a share, a year ago. Earnings included 12 US cents per share in tax-related benefits.

Analysts had expected a net profit of 36 US cents a share, on average. Revenue rose 56 percent to US$3.68 billion, shy of analyst expectations of US$3.74 billion, according to Reuters Estimates.

Apple has about a 75 percent share of the entire digital music player market, according to market research firm NPD Group. Last month, it unveiled its credit-card sized iPod nano, which replaced the iPod mini, then the best-selling iPod version.


Nano sales

Tim Cook, Apple's worldwide head of sales and operations, said on a conference call at least three times that demand for the nano was "staggering", but analysts said they had a hard time reconciling that with what they were seeing in their own checks and surveys in the market.

"There are plenty of nanos out there and that doesn't reconcile with what the company has said," American Technology Research analyst Shaw Wu said.

Apple shares have traded at a premium to other computer makers due to the iPod phenomenon, and analysts said any disappointment was likely to lead to a sell-off.

Based on Tuesday's closing price, Apple shares trade at about 30 times estimated net earnings per share for its fiscal 2006 ending in September and shares of number one PC maker Dell, which is focused on volume sales, trade at about 17 times its estimated net earnings per share for its fiscal 2007 ending in January of that year.

Goldman Sachs analyst David Bailey had forecast that Apple would sell 7.8 million iPods in the just-completed quarter. Wu said he had expected iPod unit sales of nearly 8 million.

For the current, first quarter Apple said it expects net earnings per share of about 46 US cents, including the expected cost of expensing options, matching Wall Street's estimate. Excluding items, Apple said it expects to earn about 49 US cents per share, the company said, a penny better than the average estimate.

The company said it expects first fiscal quarter sales of US$4.7 billion, better than the average estimate US$4.49 billion.

"We're looking for continued growth for the company," said chief financial officer Peter Oppenheimer in a telephone interview, referring to the upcoming holiday sales-fuelled quarter.

Cupertino, California-based Apple sold 1.24 million desktop and notebook computers in the quarter, up 48 percent from a year ago, or triple the PC market rate, Oppenheimer said.

It sold 602,000 desktop Macs in the period, a 56 percent increase from a year ago, and 634,000 notebook PCs, a 41 percent increase from a year ago.

Additional reporting by Vivianne Rodrigues in New York.
 
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