Duncan Martell

SAN FRANCISCO: Apple Computer Inc. on Wednesday said its quarterly profit more than quintupled, fueled by strong sales of its iPod digital music players and its signature Macintosh computers, sending its shares up nearly 3 percent in after hours trading.

Apple shipped more than 6 million iPods, about 1 million more than expected according to one fund manager, and saw strong sales of its upgraded operating system. It was the ninth consecutive sequential increase for iPod shipments, which accounted for 31 percent of Apple's total quarterly revenue.

The company, which announced last month it is switching to microprocessors made by Intel Corp. from IBM, also showed its best revenue in nine years at its education unit, Chief Financial Officer Peter Oppenheimer said in an interview.

With sales of about $100 million in the quarter for its recently released Mac OS X Tiger operating system software upgrade, Apple had its best ever operating system release, Oppenheimer said.

"It looks very solid," said Jim Fisher, portfolio manager at Univest Wealth Management. "The thing that stands out for me is the iPod shipments, which were 1 million more than what the street was anticipating."

The forecast for the current quarter, however, was slightly shy of average Wall Street expectations. Analysts said the Apple might be being conservative in its forecast due to the transition to using Intel chips.

"The guidance is just about in line with consensus so that could be perceived as a disappointment," said Shaw Wu, an analyst at American Technology Research.

Apple's net income for its third fiscal quarter ended June 25 rose to $320 million, or 37 cents per share, from $61 million, or 8 cents a share, a year ago. Revenue rose 75 percent to $3.52 billion from $2.01 billion.

Analysts had expected Apple, which has blown past average Wall Street expectations in recent quarters, to earn 31 cents per share, on average, on revenue of $3.34 billion, according to Reuters Estimates. Earnings estimates ranged from 28 cents a share to 34 cents a share.

And even though rivals such as Yahoo Inc., Napster, Microsoft and others have entered the online music business, Apple's market share has actually increased, said Tim Cook, Apple's head of sales and operations, on a conference call. Its U.S. share of legally bought and downloaded music crossed 80 percent in the quarter, as measured by Nielsen SoundScan.

Apple said it sold 687,000 desktop Macs and 495,000 notebooks Macs in the quarter, an increase of 35 percent from a year ago, and a rate that is about three times the overall market growth rate as forecast by IDC, Cook said.

Gross margin, or the percentage of revenue after subtracting product costs, was a better-than-expected 29.7 percent, Apple said.

For the current, fourth quarter, Apple expects earnings per share of about 32 cents and revenue of about $3.5 billion.

Analysts currently expect Cupertino, California-based Apple to have a profit of 32 cents per share, on average, within a range of 25 cents to 36 cents, on revenue of $3.58 billion.

Apple shares rose 11 cents to close at 38.35 on Nasdaq. So far this year, the stock has increased in value by about 18 percent, after tripling in 2004. In after-hours trading on Inet the stock rose 2.9 percent to $39.46.

(Additional reporting by Anna Driver)

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