Apple's Earnings Soar Even Higher Than Expected

Originally published on July 26, 2011 5:44 pm

Apple Inc. reported another exceptional quarter Wednesday, nearly doubling its net income and far exceeding analyst estimates on the strength of the seemingly unstoppable iPhone.

There's only one problem: The tech giant couldn't produce the new iPad fast enough.

"We sold every iPad 2 we could make," said Apple's chief financial officer, Peter Oppenheimer.

It sold 4.7 million iPads of both kinds in its latest quarter, fewer than analysts predicted and fewer than it sold during the last three months of 2010. Apple launched the second incarnation of the tablet sensation in mid-March, just two weeks before the end of the quarter.

Tim Cook, the company's chief operating officer, said in a conference call that the lion's share of growth happened in China.

"We feel very, very good about where we are," he said.

And Apple should: Sales in China quadrupled over last year. Revenue was up to nearly $5 billion. The Apple store in Shanghai is selling more than the one on Fifth Avenue in New York City.

Apple said net income for its fiscal second quarter, which ended in March, was $5.99 billion, or $6.40 per share, up 95 percent from $3.07 billion, or $3.33 per share, a year ago.

The quarterly numbers soared far past the predictions of analysts, who were expecting earnings of roughly $5.37 per share.

Apple's revenue was $24.7 billion, up 83 percent from $13.5 billion a year ago. Analysts were expecting $23.4 billion.

The results were lifted by the record sale of 18.6 million iPhones, millions more than analysts had expected. Verizon Wireless started selling the phone in the first quarter, ending AT&T's three-and-a-half-year period of being the only iPhone carrier in the United States. In most other countries where the iPhone is available, it's sold by more than one phone company.

Earlier Wednesday, AT&T reported strong iPhone sales, as it apparently continued to upgrade many existing subscribers even in the face of competition from Verizon.

Apple also got good news on the computer side: It sold 3.8 million Mac computers in the quarter, a 28 percent increase over last year. The increase is particularly notable given that research firms found a contraction of 1 percent to 3 percent in the overall PC market in the same period.

For the current quarter, Apple said it expects revenue of $23 billion and earnings of about $5.03 per share. Both figures are below analyst expectations of $23.9 billion and $5.26 per share, respectively. Apple commonly lowballs its forecasts, but Cook said the effects of the earthquake on the Japanese economy would reduce revenue by $200 million, or about 1 percent.

Although the situation in Japan remains precarious, analyst Tim Bajarin of Creative Strategies said he doesn't think Apple is likely to face many manufacturing obstacles.

"They never rely on just a single supplier," he said. "They are bringing in components from partners in Taiwan, China, as well as Japan, and so they're pretty well insulated."

Apple is also benefiting from an overall market shift away from the desktop, said Carl Howe, an analyst with Yankee Group.

"Now we're moving into a very mobile-connected market, one in which we take our devices everywhere and we use them all the time," he said.

Howe said about 1.5 billion people have a desktop, whereas about 5 billion and counting have a mobile device.

Wednesday's earnings news arrived after the markets closed. Apple's stock price ended the trading day up 1.4 percent at $342.41. In after-hours trading, Apple topped $355 per share — up another 3 percent.

NPR's Laura Sydell contributed to this report, which contains material from The Associated Press.

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MARY LOUISE KELLY, Host:

Apple's quarterly results once again beat Wall Street expectations. The company nearly doubled its net income. Blockbuster iPhone and Mac sales fueled the growth. The success comes despite some concerns about how the earthquake in Japan might affect Apple's supply chain. NPR's Laura Sydell reports.

LAURA SYDELL: Apple is now the world's most valuable technology company, and it looks like there's no stopping it. Apple had record iPhone sales, more than 18.5 million. The iPhone now makes up half of Apple's revenues. The company's COO Tim Cook said, in a conference call, the lion's share of growth happened in China.

TIM COOK: And so we feel very, very good about where we are.

SYDELL: Things went well for Apple despite its deep connection to suppliers in Japan, where the effects of the earthquake and tsunami continue. Cook expressed sadness over the events there, but said Apple had worked closely with its suppliers.

COOK: Our preference from the beginning of this tragedy has been to remain with our long term partners in Japan. And I have to say they have displayed an incredible resilience that I've personally never seen before.

SYDELL: Although the situation in Japan remains precarious, analyst Tim Bajarin of Creative Strategies believes Apple isn't likely to face many manufacturing obstacles.

TIM BAJARIN: They never rely on just a single supplier. They are bringing in components from partners in Taiwan, China, as well as Japan, and so they're pretty well insulated.

SYDELL: Apple is also benefiting from an overall market shift away from the desktop, says Carl Howe, an analyst with Yankee Group.

CARL HOWE: Now we're moving into a very mobile-connected market, one in which we take our devices everywhere and we use them all the time.

SYDELL: Howe says about 1.5 billion people have a desktop computer, whereas about 5 billion and counting have a mobile device.

IBM: Howe says Intel is making chips for many mobile devices, and IBM is making the servers.

HOWE: So, when you have a mobile device, you use it to get to some type of content. And those content providers, typically run on big iron. The sort of stuff that IBM makes.

SYDELL: Laura Sydell, NPR News, San Francisco. Transcript provided by NPR, Copyright NPR.