Profit at Apple Almost Triples on a Sharp Rise in IPod Sales
By LAURIE J. FLYNN
Published: April 15, 2004
AN FRANCISCO, April 14 - Apple Computer Inc. said Wednesday that its profits nearly tripled in its second quarter because of continued strong sales of the iPod portable music player and notebook computers.
For the three months ended March 27, Apple reported a net profit of $46 million, or 12 cents a share, compared with $14 million, or 4 cents a share, in the quarter a year earlier. Revenue was $1.91 billion, a 29 percent increase from $1.48 billion.
"We feel great," Steven P. Jobs, Apple's chief executive, said in an interview. "We sold a lot of Macs, but we've sold more iPods in the quarter than all the Macs put together."
Mr. Jobs said the company sold a record 807,000 iPods in the quarter, a 900 percent increase from the period a year earlier. The company sold 749,000 Macintosh computers in the quarter, up 5 percent.
The earnings beat Wall Street's forecast by a significant margin. Analysts polled by Thomson First Call had forecast earnings of 10 cents a share on $1.8 billion in revenue. Excluding a restructuring charge of $7 million, the company had a profit of 14 cents a share.
The company also forecast third-quarter revenue of $1.93 billion and earnings of 12 to 13 cents a share.
Apple announced its results after the close of regular trading. Shares of Apple closed down 29 cents, at $26.64, but rose as high as $27.07 in after-hours trading.
In the last year, several major new players have entered the market for portable music devices, including Dell. But Mr. Jobs said that the iPod had a 40 percent share of the MP3 player market and that the company had seen little pressure from competitors. In only two years, he said, Apple has sold 2.9 million iPods. In January, Hewlett-Packard announced a partnership with Apple that calls for Hewlett to resell the iPod and offer its iTunes service to its customers.
But the company's latest entry in the digital music market, the iPod mini, has been in tight supply since it was introduced in February, and Apple executives said that problem would continue in the third quarter. "The demand is a lot higher than we thought, and we're limited in how many we can manufacture," Mr. Jobs said.
Executives said they expected to solve the supply problem before the end of the fiscal year. "We feel we will reach a supply balance in Q4," said Peter Oppenheimer, Apple's senior vice president for finance and its corporate controller, who will become the chief financial officer on June 1 with the retirement of Fred Anderson. As a result of the supply constraints, the introduction in Europe of the iPod mini, which weighs about as much as a cellphone and sells for $249, has been delayed until July from April.
Apple executives also denied that reports of problems with iPod minis were serious or widespread. In the last few weeks, some customers have described problems with static in the earphones. "We're highly confident with the minis we're shipping," Mr. Oppenheimer said. "The number of complaints we've had through AppleCare tech support is extremely small."
Mr. Jobs also pointed to success in the iTunes business and said the company recently reported that it had sold 50 million songs. During the last year, new rivals have entered the music download business as well, including low-cost notables like Wal-Mart Stores, which is offering songs for 88 cents each compared with 99 cents for iTunes.
William R. Fearnley, an analyst with FTN Midwest Research, said the company had strong momentum in several product areas and should focus on expanding its core Macintosh business. The company, he said, was on the right track with its introduction of a major upgrade to the Macintosh operating system, OS X, as well as with the G5, a powerful version of the Mac.
"We continue to like what they're doing," Mr. Fearnley said. "Now they need to grow the Macintosh sales and Macintosh's share."
