Strong Mac sales lead Apple earnings growth

Need help with your Mac, iPod or iPhone? Contact Victor Orly!
(310) 891-6820 x101 or email vicblog@orly.com

SAN FRANCISCO (MarketWatch) -- Apple Inc. shares bounced back from a weak start Thursday as investors got behind the company following its second-quarter report in which strong sales of Macintosh PCs helped drive Apple's earnings up 36% from a year ago.

Apple rose $6.05 a share or 3.7%, to close at $168.94 after the company reported earnings of $1.05 billion, or $1.16 a share, on $7.51 billion in revenue for the quarter ended March 31.

During the same period a year ago, Apple earned $770 million, or 87 cents a share, on sales of $5.26 billion.

The results topped Apple's forecast for a profit of 94 cents a share and $6.8 billion in revenue. Analysts surveyed by FactSet
Research had estimated Apple would earn $1.05 a share on sales of $7 billion.

The highlight of the quarter was 2.29 million Macintosh computers sold, a 51% increase over the past year's second quarter. Barry Jaruzelski, a managing partner with Booz, Allen, Hamilton, said the results show that the Mac is now the driving the Apple machine.

"The Mac is on a tear," Jaruzelski said. "The halo effect of the iPod has resulted in a broader product portfolio, and now the Mac can pull the boat along for a while."

While the Mac has picked up steam, iPod sales showed some signs of reaching the plateau that had long been anticipated. Apple said it sold 10.6 million iPods during the quarter, just a 1% rise from the same period a year ago.
Gross margins as a percentage of revenue were 32.9%, down from 35.1% a year ago.

"The revenue and unit (sales) were very strong," said Shaw Wu, of American Technology Research. "However, the margins were lighter than expected." Wu cut his rating on Apple's stock to hold from buy on Tuesday. Complete technology coverage.
Apple also said it sold 1.7 million iPhones during the quarter. Chief Operating Officer Tim Cook said, "We're confident in hitting the 10 million (sales target) for the year."

In recent weeks, questions were raised about iPhone shortages at Apple retail stores, with speculation rising that the company was working through its inventories in order to prepare for the release of a third-generation, or 3G iPhone.
However, Cook said he believed the main reason for the lower stock of iPhones was because, "there are more phones being bought there with the intention of unlocking (the phone), which remains a significant number."
Guidance.

The upbeat earnings report had been tempered somewhat by one of Apple's typically conservative third-quarter outlooks, which came in shy of Wall Street analysts' estimates.

For its fiscal third-quarter, Apple expects to earn $1 a share on revenue of $7.2 billion. Analysts had previously forecast Apple would earn $1.09 a share on $7.23 billion in sales.

But Apple has a history of lowering quarterly estimates and then turning in results that are higher than expected.
BMO Capital Markets analyst Keith Bachman said in a research note that for the past three years, Apple has given a fiscal third-quarter outlook for earnings that would be below its second-quarter results, and then exceeded both numbers.

For example, last year, Apple reported second-quarter earnings of 87 cents a share, then forecast a third quarter profit of 66 cents a share. Apple ended up earning 92 cents a share for the quarter.

Bachman holds an outperform rating on Apple's stock. He also raised his current fiscal year earnings estimate for Apple to $5.13 a share from $5.10 a share.

Prior to the earnings call, Apple said it had acquired P.A. Semi, a privately held chipmaker based in Santa Clara, Calif. which makes power-efficient chips that are mostly used in networking and telecom equipment.
Apple didn't disclose terms of the deal, but reports said Apple paid $278 million.