Earnings: AAPL: iPods Contribute 39 Percent Of Q2 Revenue; iTunes Turns Profit

Music continues to grow in importance for Apple Computers. The company sold 8.5 million iPods in the traditionally weak March quarter, a 39-percent sequential drop from holiday sales of 14 million-plus but a 69-percent increase over the same quarter last year. The sales accounted for $1.7 billion of Apple’s $4.36 billion revenues. The iTunes Store and iPod-related accessories brought in another $485 million, down just 1 percent sequentially but up 125 percent over last year. Combined, music accounts for slightly more than half of Apple’s revenues with $2.199 billion — and considerably more than the $1.7 billion from computer sales. Overall, Apple’s earnings rose by 41 percent to $410 million, or $0.47 per diluted share, on revenue of $4.36 billion from $290 million, or $0.34 per diluted share, on revenue of $3.24 billion the previous year.
The iTunes Store “operated above break even” — Apple code for “made a profit” — in the March quarter, the second of the company’s fiscal year. Asked if Apple was still shooting for break-even on iTunes, CFO Peter Oppenheimer replied during the earnings call: “We think selling songs and video is really helping us to sell iPods.” (I should clarify that operating above break even for one quarter doesn’t mean overall profitability.)
CEO Steve Jobs from the earnings release (he doesn’t participate in the quarterly calls): “We’ve generated over $10 billion in revenue and almost $1 billion in earnings in the first half of fiscal 2006. Our transition to Intel processors is going very well, and our music business just experienced another quarter of outstanding growth.” More from the earnings call in a bit.
WSJ (sub. req.): Jobs told the Journal he’s still optimistic about iPod’s growth potential and that he’s not concerned about seasonal decline: “To be honest, nobody has ever sold 8.5 million music players in a quarter.”
Update: When an analyst asked about French and EU efforts to legislate interoperability, Oppenheimer reiterated the company’s position. Short version: bad idea. Long version: “We believe that the French implementation of the EU copyright directive will result in state-sponsored piracy and, if this happens, we believe legal music sales will plummet just when legitimate alternatives to piracy are winning customers over and we don’t think the proposed French legislation will be good for anyone.”
Earnings release | Financials | Data | Webcast (replay available at 8 p.m. eastern)

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