Earnings: Apple Profits Up 47.5 Percent For FY3Q06

Fueled by the Macintosh shift to Intel, Apple (AAPL) reported a 47.5-percent increase in profit for its fiscal third quarter to $472 million, or $0.54 per share, up from $320 million, or $0.37 per share in the same quarter last year. Revenue rose 24 percent to $4.37 billion from $3.52 billion the previous year. Apple handily beat analysts’ earnings expectations — via MKTW, the Thompson First Call estimate was $0.44 — but came in slightly below the expected $4.4 billion in revenue.
— Apple shipped 8.1 million iPods, up 34 percent over FY2Q05, producing revenue of nearly $1.5 billion — just more than one-third of the company’s sales. That’s an increase over the 6.1 million shipped in the same quarter last year but represents a sequential drop of 5 percent.
— Similarly, other music-related products and services — iTunes, iPod accessories, etc. — brought in $457 million last quarter, up 90 percent over the $241 million that came in during the same quarter last year but 6 percent below last quarter’s revenue of $485 million. The U.S. iTunes Music Store offers 3 million-plus songs, 9,000 music videos and more than 150 television programs.
— Overall, music products account for 45 percent of Apple’s total revenue; coincidentally, revenue from music rose by 45 percent year over year.
— CEO Steve Jobs (from the release): “We’re thrilled with the growth of our Mac business, and especially that over 75 percent of the Macs sold during the quarter used Intel processors. This is the smoothest and most successful transition that any of us have ever experienced. In addition, iPod continued to earn a US market share of over 75 percent and we are extremely excited about future iPod products in our pipeline.”
— The recently launched Manhattan store is already the highest-volume store and already has passed 500,000 visitors. No details about how much they’re spending and what they’re buying.
Earnings call: Analysts’ efforts to find out just what is in the iPod pipeline were unrequited. CFO Peter Oppenheimer: “You know that we do not talk about unannounced products, so there is really a limit to what I can say. I will just tell you two things. The first is, we are very confident in the products in our pipeline and I just do not imagine that the creativity at Apple could ever be low.”
— Apple is working with BestBuy to evaluate the results of the pilot program underway in some store; no details.
— Analysts are concerned about the possible effects of the European efforts to force Apple into interoperability. Nothing new from Oppenheimer: “We believe that any legislation that requires the sharing of DRMs will result in state-sponsored piracy, which we think will cause artists to disallow their works to be sold digitally just as the market is beginning to grow.” The mantra continues with hoping that countries “will let the extremely competitive marketplace, driven by consumer choice, decide which players and online music stores are offered to customers.” So far, no discernible impact.
— For all you folks waiting for an iPod cell phone, here’s what CFO Oppenheimer had to say: “We do not think that the phones that are available today make the best music players. We think the iPod is. But over time, that is likely to change, and we are not sitting around doing nothing.”
Release | Data| Financials | Webcast| Transcript (SeekingAlpha.com)

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