Apple Profit Surges on Continued Strength of iPod

By Anjali Athavaley
Washington Post Staff Writer
Thursday, July 14, 2005

Apple Computer Inc.'s profit more than quadrupled to a record $320 million in its third fiscal quarter, ended June 25, bolstered by a rise in shipments of the iPod portable music device and Macintosh computer sales, the company said yesterday.

Shipments of the Apple iPod surged to 6.2 million units in the third quarter, from 5.3 million in the previous three months, surprising analysts who were expecting a decline. Shipments rose 616 percent over last year's third quarter.

"At the end of the day, the market for the iPod is more resilient than they thought," said Gene Munster, a senior research analyst with Piper Jaffray & Co.

The booming success of the iPod, which debuted in 2001, is carrying over to Apple's other products, Munster said. The company posted a 35 percent increase in computer sales from last year at a time when the rest of the industry saw about an 11 percent jump in sales, he said.

Analysts said the increases could continue over the next few months.

"With new products and increased distribution into Wal-Mart, iPod sales have solid prospects for sequential growth after the June quarter," said Benjamin Reitzes, an analyst with UBS Investment Research, in a research note written before Apple reported its earnings.

The earnings beat analyst expectations for the seventh straight quarter. The Cupertino, Calif.-based company earned 37 cents per share, compared with 8 cents in the corresponding quarter of 2004. Net sales rose 75 percent, to $3.52 billion.

"No one can figure out a way to compete with them," Munster said. "It really is an amazing franchise that they've built here."

But even with record earnings, the company was conservative in its forecast for the fourth quarter. Apple said its revenue would be down, or flat at $3.5 billion.

That's partly because of Apple's announcement last month that it will switch from IBM chips to Intel chips in its products, a move that some analysts have said could cause a dip in sales as customers wait out the transition.

Peter Oppenheimer, Apple's chief financial officer, said in a conference call with analysts that it was too early to gauge the impact on sales.

"We have limited data," he said. "We are being prudent with our guidance as a result of that."

Apple also said that sales of the Mac OS X Tiger operating system, released in April, would likely decline in the fourth quarter. New software usually has a spike in sales when first released.

Apple's shares closed yesterday before the earnings announcement at $38.35, up 11 cents.

© 2005 The Washington Post Company