by CIO Staff

Apple Beats Street on Strong Sales, Margins

Jul 20, 20063 mins
Data Center

Fueled by strong product sales and an increase in gross margins, Apple Computer Wednesday solidly beat Wall Street estimates for its fiscal third quarter, reporting earnings of US$472 million, or $0.54 per share.

Analysts polled by Thomson Financial expected Apple would report earnings per share of $0.44 for the quarter, or $392 million. The company beat those estimates by $0.10, though overall revenue for the quarter, at $4.37 billion, was slightly lower than analysts’ consensus. Thomson had expected Apple to report revenue of $4.4 billion for the quarter, which ended July 1.

Apple also got help from a slightly lower tax rate during the period, which boosted its earnings by about $0.03 per share.

Gross margins helped drive earnings ahead of expectations. Gross margins for the quarter were 30.3 percent, an increase over last quarter when margins were 29.9 percent. Gross margins for the same quarter last year were 29.7 percent.

Prior to the announcement, Wall Street feared that Apple would meet its own earnings-per-share guidance for the quarter, which was between $0.39 and $0.43, but would not meet analysts’ estimates. Apple had not announced any new products in its iPod line during the quarter. Since analysts sometimes set estimates in anticipation of a boost from new products, particularly Apple’s iPods, some believed the company’s revenue would be lower than Wall Street expected.

That was not the case, however, and both iPod and computer shipments were up year over year for the quarter. Apple shipped 1.33 million Macintosh computers and 8.11 million iPods during the quarter, representing year-over-year growth of 12 percent and 32 percent, respectively.

Apple’s music business represented 45 percent of its revenue for the quarter, executives said during a conference call Wednesday. Apple’s iPod accounts for more than 75 percent of all digital music players sold worldwide, they said, and the company continues to be “enthusiastic” about continued success for iPod even as competition in the MP3 player market heats up. Recent rumors predict that even Microsoft soon will enter the music-player space with its own competitor to iPod, though the Redmond, Wash.-based company has yet to confirm this move.

Looking ahead to the fourth quarter, Apple expects non-generally accepted accounting principles earnings per share between $0.46 to $0.48, with revenue between $4.5 billion and $4.6 billion.

Executives said they expect sales of Apple computers to be strong in the fourth quarter because it is the season when U.S. students return to school for a new year, and there is typically a boost in computer sales during this time.

“We believe we’re well-poised for the back-to-school season,” said Apple Chief Operating Officer Tim Cook. He said Apple expects sales of new Intel processor-based MacBook and MacBook Pro notebooks will do especially well with back-to-school customers in the fourth quarter.

-Elizabeth Montalbano, IDG News Service (San Francisco Bureau)

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