There's nothing like a solid quarter to take the market's mind off bad news elsewhere. That happened on Jan. 21, when Apple (AAPL) released a report showing better-than-expected profit and record revenue and iPod unit sales. Sales in the fiscal first quarter rose 6% to $10.17 billion while profits increased to $1.61 billion, or $1.78 a share, outpacing the average analyst estimate of $1.39.
Headlines like that could make it easy to forget temporarily that the U.S. is in the throes of a recession and consumers and companies are reining in spending on consumer electronics. The slump is taking a toll on much of the rest of the technology industry, from chipmakers such as Intel (INTC) to makers of computer accessories such as Logitech (LOGI). It's hitting home at Apple, too. For example, U.S. sales of the iPod declined.
But results in other areas more than made up for the drop. Growth in iPod sales came from outside the U.S., Apple Chief Operating Officer Tim Cook told analysts on a conference call. "iPod sales ended up much better than anyone thought," says Shaw Wu of Kaufman Brothers Equity Research.
Apple exhibited strength in sales of its iPhone, as well. The company sold 4.36 million units, an 88% increase from a year earlier. The company spreads iPhone sales over two years, accounting for $1.2 billion in revenue in the most recent period. Chief Financial Officer Peter Oppenheimer said the "total sales value" of iPhones sold during the quarter was $2.6 billion. During calendar 2008, Apple sold 13.7 million iPhones, beating its goal of selling 10 million units in that period. It expects to have the iPhone selling in more than 70 countries by the end of this quarter.
Sales of Macintosh computers grew 9%, hitting 2.5 million units. Apple continued to benefit from the release in the previous quarter of a new line of notebooks. Desktop sales declined 25%, falling to 728,000 units, from 977,000 a year ago. Oppenheimer pointed out that sales of the iMac, Apple's consumer desktop, surged by more than 50% in August 2007, when the product was upgraded. He also said the drop reflects a broad shift in consumer preferences for notebooks.
In all, the results fueled a surge in Apple shares. In extended trading, the stock rose more than 9%, to 90.55. Earlier, the shares had risen almost 6%, to 82.83.
The numbers also appear to have diverted attention from a report that the Securities & Exchange Commission is probing how Apple handled news of a decline in Steve Jobs' health. The CEO said on Jan. 14 that he's handing over day-to-day operations to Cook while he recuperates from an illness that's proving more complicated than he originally thought. That came days after he said he was suffering from an easily remedied "hormone imbalance." The SEC wants to know whether Apple was as forthcoming about his illness as it should have been, according to Bloomberg News. During the conference call, analysts didn't ask Apple executives about inquiries by the SEC.
Future Fight over Intellectual Property?
They did, however, inquire whether Cook felt he was a de facto successor in the event Jobs does not return to work. Cook took the opportunity to make an extended statement about the state of the company. "There is an extraordinary breadth and depth and tenure to Apple's executive team," he said. "They manage 35,000 employees, all of whom are wicked smart.…I strongly believe that Apple is doing the best work in its history." No mention was made of Jobs other than when Oppenheimer said, "He continues as CEO of the company."
And as upbeat as last quarter's results were, the current period may prove more challenging. Oppenheimer said Apple expects to record revenue of $7.6 billion to $8 billion, and to report per-share profit of 90¢ to $1. Analysts were expecting sales of $8.2 billion and per-share earnings of $1.13.
Cook also hinted at another battle the company may be girding to fight. Asked about potential iPhone competitors from Palm (PALM) and from Google (GOOG) and its many hardware partners, he said, "We like competition as long as our competitors don't rip off our IP [intellectual property], and we're going to go after anyone who does." Cook declined to name any companies that might be engaged in such theft, but warned "we're ready to suit up and go against anyone."