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Filter - Cynthia L. Webb
Apple Thanks Its Lucky iPods


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By Cynthia L. Webb Staff Writer
Thursday, July 15, 2004; 9:52 AM

The iPod digital music player seems to spin pure gold, helping Apple Computer Inc.'s quarterly profit more than triple and pushing to the background news that its share of the personal computer market is falling.

Apple's third-quarter profit skyrocketed to $61 million from $19 million last year. Revenue climbed 30 percent from $1.55 billion to $2.01 billion. Chief executive Steve Jobs called it Apple's "highest third quarter revenue in eight years," in a statement released yesterday. "Our Mac-based revenue grew a healthy 19 percent, and our music-based revenue grew an incredible 162 percent," he said.

Apple's flagship Macintosh computer sold well, but iPod sales nipped at its heels. "Apple sold 860,000 iPods in the quarter, accounting for $249 million in revenue, up from 304,000 iPods sold in the year-ago quarter. The company sold 876,000 Macintosh computers in the period, accounting for $1.26 billion, an increase from 771,000 a year ago," Reuters reported. The Los Angeles Times noted that the iPod "helped drive the sales of accessories, online music and even the company's signature Macintosh computers."

One analyst latched onto the surge in Macintosh sales. "This quarter, Apple drove upside through growth in their core Macintosh units, rather than just relying on the iPods," Fulcrum Global Partners analyst Rob Cihra told the Wall Street Journal. "Despite the improved Macintosh sales, Apple's market share continues to erode to under 2% of the world-wide personal-computer market. Sales of the iPod, while rising, still represent a relatively small portion of the company's business and yield a lower profit margin." The paper noted that the iPod netted 12 percent of Apple's revenue. Needham & Co. analyst Charlie Wolf told the Journal that iPod's success has "turned Apple into a growth story."
Reuters via The Washington Post: Apple Profit Triples On iPod Sales (Registration required)
Los Angeles Times: Apple's Profit Triples On Sales (Registration required)
The Wall Street Journal: Apple's Earnings More Than Triple, Forecast Is Solid (Subscription required)

Apple shifted the blame for delayed shipments of its new iMac computer to another tech heavyweight IBM. Apple "disclosed yesterday that problems in I.B.M.'s manufacturing of the G5 microprocessor were the reason for the delay in shipments of several new Macs, most notably a new iMac model. But in an interview yesterday, Mr. Jobs said that the problem was temporary and that he was confident that I.B.M. would resolve the problems by the end of the current quarter. Like much of the semiconductor industry, I.B.M. is making the transition to 90 nanometer wafers, the latest in PC chip manufacturing. On Tuesday, Intel executives disclosed that the transition to the new manufacturing process had caused inventory problems," the New York Times reported. "Apple was satisfied IBM is taking enough steps to resolve the problem," the San Francisco Chronicle said, citing remarks from Tim Cook, Apple's executive vice president of worldwide sales and operations.

And the company still has a problem competitors envy: The iPod Mini has been hard for consumers to get their hands on, with a month-long waiting time. Apple executives yesterday said they were working hard to meet demand, the New York Times reported.

"The demand for the mini version of the popular player has been 'staggering' in the United States and continues to far outstrip supply even though the product's hard-disk provider has ramped up production, Apple's worldwide vice president of sales Tim Cook told analysts during a conference call," the Associated Press reported. "'Unprecedented' orders for European shipments, set to begin July 24, also will mean continued backlogs probably through the end of the year."

But the delay did bring some criticism. "As good as the third quarter was, 'The one product that could have provided a real upside wasn't available,'" said analyst Wolf of Needham & Co., according to USA Today. Nevertheless, Pacific Crest Securities analyst Steve Lidberg told the Los Angeles Times "Apple would continue to be buoyed by the iPod – especially if the company can increase production to meet demand. 'It's going to be an iPod Christmas,' Lidberg said."
The New York Times: Demand for iPods Leads Big Increase in Profits for Apple (Registration required)
Associated Press via The Washington Post: Apple's Third-Quarter Earnings Beat Expectations (Registration required)
San Francisco Chronicle: Apple's Sales, Revenue Surge
USA Today: Apple Celebrates 'Outstanding' Third Quarter

USA Today pointed out that Apple is no one-trick pony: "Apple has been transforming itself into an entertainment company from a pure computer maker. Its iTunes Music Store has become the most popular place to buy authorized music downloads online. It has sold 100 million songs since opening for business in April 2003, and Apple says iTunes made a 'small' profit in the third quarter. Apple has 80,000 orders for a new wireless device, the $129 AirPort Express, which streams music from a computer PC or Mac to a home stereo. AirPort Express began shipping this week."

Apple's numbers pleased investors, particularly since recent earnings news from other tech heavyweights has disappointed Wall Street. "The strong results and forecast boosted Apple shares almost 7%, or $1.97, in after-hours trading, to $31.55 apiece. In 4 p.m. trading on the Nasdaq Stock Market, the shares were up 36 cents at $29.58. Peter Oppenheimer, Apple's chief financial officer, forecast the company will deliver revenue of $2.1 billion and earnings of 16 cents to 17 cents a share for the current quarter. Those figures are in line with prior estimates by Wall Street analysts," the Wall Street Journal reported.

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