January 21, 2007 / 4:22 PM / 13 years ago

Apple profit trounces forecasts, outlook lags

SAN FRANCISCO (Reuters) - Apple Inc. (AAPL.O) reported on Wednesday a 78 percent surge in quarterly profit, trouncing Wall Street expectations in a strong holiday season driven by sales of iPod digital music players.

Shoppers pass by the Apple Store on Chicago's Magnificent Mile in a file photo. Apple reported on Wednesday a 78 percent surge in quarterly profit, boosted by strong holiday sales of iPod digital music players and brisk sales of its MacBook laptops. REUTERS/John Gress

But the forecast for the current quarter lagged analysts’ targets and shares of the company, known for its cautious outlook, slipped in after-hours trade.

“The guidance is pretty conservative, more so than what people were expecting,” American Technology Research analyst Shaw Wu said. “The iPod business is stronger than most people were expecting.”

Analyst Shannon Cross of Cross Research said she was not concerned about what appeared to be a cautious forecast but was curious about whether Apple’s first-quarter gross margin of 31.2 percent was sustainable.

Apple said net income for its first fiscal quarter ended December 30 rose to a record $1.004 billion, or $1.14 per share, from $565 million, or 65 cents per share, in the year-ago quarter. Revenue rose to $7.12 billion from $5.75 billion.

Analysts had expected Apple to post adjusted net income of 78 cents per share, on average, on revenue of $6.43 billion, according to Reuters Estimates. The results compared with Apple’s own earlier forecast of earnings per share of 70 cents to 73 cents and revenue of $6.0 billion to $6.2 billion.

The company expects second-quarter earnings per share of 54 cents to 56 cents and revenue of $4.8 billion to $4.9 billion, compared with average forecasts of analysts polled by Reuters Estimates of 60 cents per share on revenue of $5.2 billion.

Apple is coming off its annual Macworld conference, where it generated more buzz than usual this year when Chief Executive Steve Jobs unveiled a much-anticipated multimedia device called the iPhone, which goes on sale for $500 to $600 in June.

Apple said it shipped 21.1 million iPods in the first quarter and 1.61 million Macintosh computers, representing increases on the same quarter a year ago of 50 percent and 28 percent, respectively.

Sanford Bernstein analyst Toni Sacconaghi had forecast Apple to ship 17.5 million iPods in the December quarter, or a 25 percent increase from a year ago, and Mac unit shipments of 1.68 million, or a 34 percent increase.

Chief Financial Officer Peter Oppenheimer said in a phone interview that Apple’s Mac unit growth rate was more than triple that of the overall personal computer industry, an outperformance that is in line with recent quarters.

He said the iPod gained market share in the quarter for every market in which it has sales data, and he noted particularly strong iPod sales growth in Europe.

He also said Apple’s retail stores had a robust quarter, selling 308,000 Macs, up 60 percent on a year ago. Apple now has 170 stores and opened five in the quarter.

Shares of Cupertino, California-based Apple rose 18 percent in 2006, after more than doubling in 2005 and tripling in 2004, propelled by strong sales of iPods and a rejuvenated line of Mac desktop and notebook computers.

Shares of Apple surged above $99 initially in after-hours trade before easing back to $94.15. In regular trade, the stock fell $2.15, or 2.2 percent, to $94.95 on Nasdaq.

Additional reporting by Michael Kahn in San Francisco

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