Apple earnings tops expectations

SAN FRANCISCO: - Apple Computer Inc. said that quarterly net income fell about 40 percent as higher costs from opening its retail stores offset revenue growth at the maker of Macintosh computers.

At the same time, the results were above the consensus estimates for both earnings and revenues, and shares of Apple, which has about 3 percent of the PC market worldwide, rose in after-hours trade.

Fred Anderson, Apple Chief Financial Officer, said in an interview that strong sales of its iBook and PowerBook line of laptop computers led it to the highest revenue that Apple has posted in 11 quarters.

Looking to the fourth quarter, Anderson told Reuters that he sees "a high single-digit percentage increase" in revenue from the third quarter and a "slight sequential increase" in earnings per share.

"The fact that revenue is growing is a positive sign," said Gartner analyst Martin Reynolds, after declines for Apple and other high-tech companies for the last several years.

Analysts currently expect Apple to report fourth-quarter revenue of $1.55 billion and earnings per share of 6 cents, on average, within a range of 4 cents to 10 cents, according to Reuters Research, a unit of Reuters Group Plc.

Apple shipped 304,000 of its popular iPod digital music players, up from 54,000 units a year ago, Anderson said, adding that sales at its Apple retail stores were $145 million. The company's education sales were an additional bright point, Anderson said, noting that its shipments into that market were up 5 percent in units from a year ago.

RETURN TO OPERATING PROFIT

Apple also returned to an operating profit in the third quarter, compared with an operating loss in the prior period. In recent quarters, Apple has relied on interest from its cash hoard, now at $4.55 billion, to deliver net profits.

Notebook computers accounted for a record 46 percent of all Macintosh computers for the quarter, in a year that Chief Executive Steve Jobs has dubbed the year of the notebook for the iconic computer maker.

Sales of iMacs fell by about a quarter, however, and sales of PowerMac G4 computers were "very soft," due partially to poor business conditions for creative professionals.

Apple said that since the late-April launch of its online music store, which is integrated with its iTunes digital jukebox software, it has sold more than 6.5 million songs. Anderson said that the company is on track to release a Windows version of the store by the end of the year, declining to comment further.

For the fiscal third quarter ended June 28, Cupertino, California-based Apple said it had net income of $19 million, or 5 cents a share, down from $32 million, or 9 cents, a year ago. Revenue rose to $ 1.55 billion from $1.43 billion.

Analysts had forecast Apple to post, on average, a net profit of 3 cents a share within a range of 2 cents to 6 cents, on revenue of $1.48 billion.

Apple said it shipped 771,000 Macintosh computers during the quarter, up from 711,000 in the previous quarter and down from 808,000 Mac computers in the year-ago quarter.

Apple's cost of sales rose to $1.12 billion from $1.04 billion a year ago as both operating expenses and selling, general, and administrative costs increased.

On a conference call with analysts, Anderson said that part of the increase came from opening new retail stores. It opened last month a store in downtown Chicago, bringing its total to 62. Apple expects to have 80 stores open by the U.S. Thanksgiving holiday, the start of the holiday shopping season.

Apple shares rose to $20.25 in after-hours trade on Instinet after rising 26 cents to close at $19.87 on the Nasdaq.

© Reuters