Apple, EBay Post Earnings Increases

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By Mike Musgrove and Yuki Noguchi
Washington Post Staff Writers
Thursday, October 19, 2006

Two of Silicon Valley's major technology companies -- Apple Computer Inc. and online auctioneer eBay Inc. -- each reported bigger profit and revenue for their most recent quarters, highlighting how changes to their business strategies appear to be helping their bottom lines as they head into 2007.

Apple, of Cupertino, Calif., pointed to a significant jump in sales of Mac computers, up 30 percent from the same quarter last year and its largest year-over-year increase this year. Revenue rose more than 31 percent and profit jumped by about 27 percent in the most recent quarter, up from the comparable quarter last year.

EBay of San Jose said its biggest growth came from its PayPal online payment system, which accounts for about a quarter of eBay's business and saw a 41 percent increase in revenue over last year. Its primary auctions and shopping business increased 22 percent.

Skype Technologies, the Internet-based phone business eBay acquired last year, added 23 million users during the quarter for a total of 136 million users worldwide. Its revenue grew 13 percent from the previous quarter.

Overall, eBay's profit grew 10 percent.

For Apple, the reported earnings are preliminary and may be "subject to a significant change" if the company has to restate historical results because of a probe into stock option granting practices.

Apple board member Fred D. Anderson stepped down this month when an internal investigation found that he may have been involved in backdating stock options. Chief executive Steve Jobs held onto his job after an internal company investigation cleared him of misconduct. The company has said that no other board members are under suspicion for potentially unethical stock option practices.

In a conference call yesterday, executives said there was increased interest in Mac computers, which now use an Intel chip that allows users to run either the Mac or Windows operating systems. The move into the new chips was announced earlier this year, but last quarter was the first complete period during which the computers offered the new technology.

More than half of the computer purchases at Apple's retail stores this past quarter were made by consumers buying a Mac for the first time, Chief Financial Officer Peter Oppenheimer said.

The company also noted its push into movie downloads, which were launched last month, and a new line of video-enabled iPods would be an important part of the business for next year. An upcoming product promises to connect living room television sets with the iTunes downloads housed on computer systems.

In a statement, Jobs said that "2007 is likely to be one of the most exciting new product years in Apple's history."

A few miles away, eBay's chief executive and president, Meg Whitman, was also on a conference call, talking about next year and the work ahead for the online auctioneer.

"Earlier this year, we outlined the 'Power of Three' strategy . . . that builds on the core strengths of eBay, PayPal and Skype," she said. "Simply put, the ultimate value of our portfolio is greater than the sum of the individual parts."

The company has branched out into various businesses, such as eBay Motors and Shopping.com, to compete with other e-commerce sites and comparison-shopping sites, but its biggest challenge is in trying to keep growing the biggest and oldest part of its business: auctions.

EBay hosts Web-based stores, separate from auctions, which have become popular with many of the site's biggest sellers. But to encourage more products to go through the more profitable auction channel, eBay recently raised the fees to keep those Web-based stores.

"The problem is there are so many options out there" for sellers just pushing merchandise, said Rick Munarriz, senior analyst with financial advice company Motley Fool. But eBay faces far less competition in the United States when it comes to auctions, he said.

The other challenge for eBay is in expanding into China, a market that Whitman said yesterday has "great potential," but faces competition from established rivals, such as Yahoo Inc. Roughly half of eBay's business comes from the United States. Its international business grew 38 percent over last year.

In the future, eBay executives said they would try to combine its businesses to enhance each service so that, for example, more of its sellers will include Skype to call, or that it will be able to combine product searches with "click-to-call" advertisements.

Shares of eBay dropped slightly, closing at $28.49 before yesterday's earnings call. Shares of Apple rose slightly, closing at $74.53 before the earnings release.


© 2006 The Washington Post Company

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