Apple's good news not good enough

5:00AM Friday April 25, 2008

Sales of Macintosh computers, such as the MacBook Air, outperformed expectations. Photo / Reuters

Apple yesterday posted a 36 per cent rise in quarterly profit, helped by strong sales of Macintosh computers and iPod players, but its profit margin and cautious outlook disappointed investors.

Shares of Apple fell 1 per cent after the company, known for conservative financial forecasts, gave a profit outlook for its current quarter below Wall St estimates.

Chief financial officer Peter Oppenheimer said he expected gross margin in the June quarter to be similar to the March quarter's 32.9 per cent, which was down from 35.1 per cent a year ago.

"It looks like the Macs were good, the iPods were flat and the iPhones were OK," said Robert Stimpson, portfolio manager at Oak Associates, which owns Apple shares.

"It looks like the third-quarter earnings view is a little below the Street. With the stock up 41 per cent since the February low, it is going to take a lot of good news to propel the stock higher."

Apple said net profit for its fiscal second quarter ended in March rose to US$1.05 billion ($1.32 billion), or US$1.16 per share, from US$770 million, or 87c per share, a year ago. Revenue grew by 43 per cent to US$7.51 billion.

The results beat the average analyst forecasts for revenue of US$6.95 billion and earnings per share of US$1.07.

"It was a strong quarter in terms of Mac shipments and iPods," said Shannon Cross, analyst at Cross Research. "iPods, which had been a concern, were above Street expectations and that should hold back some who were speculating that iPod was saturated."

Apple sold 2.29 million Macs in the quarter, topping the 2.04 million to 2.2 million units forecast by five analysts who saw sales spurred by sexy new designs, the halo effect from iPods and iPhones, and consumer complaints about Microsoft Corp's rival Windows Vista operating system.

Apple sold 10.6 million iPods and 1.7 million iPhones, both near the top end of Wall St expectations. Apple is expected to launch a faster iPhone model in a few months, to address a major complaint about the gadget, especially in Europe. "We are very pleased with iPhone momentum and we remain confident of achieving our goal of selling 10 million iPhones in calendar 2008," Oppenheimer said.

He said Apple's US revenue was up 40 per cent, while overseas revenue rose 47 per cent.

Apple's more than 200 retail stores "hit the ball of out of the park" with sales up 74 per cent, he said.

The company blamed the slide in its gross margin on lower sales of its Leopard operating system, a price cut on low-end iPod shuffles, and higher sales at its iTunes online music and movies store, which runs at break-even or slightly profitable.

Apple said it expected earnings of US$1.00 per share on revenue of US$7.2 billion for its fiscal third quarter ending in June. Wall St was looking for earnings per share of US$1.11 and revenue of US$7.17 billion, according to Reuters Estimates.

The company's shares initially rose about 4 per cent on the report in after-hours trading, but quickly erased gains to trade at US$160.56 versus their Nasdaq close of US$162.89.

ON THE RISE
Apple's March quarter sales

* iPods: 10.6 million
* Macs: 2.29 million
* iPhones: 1.7 million

- REUTERS

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