Jul 202010
Authors: By John Boudreau, San Jose Mercury News for McClatchy-Tribune

SAN JOSE, Calif. — Runaway sales of iPhones and iPads — as well as a surprise surge of Macintosh computer sales — gave Apple record-breaking revenues for its third quarter.

The iPhone 4 shows no signs of slowing even after weeks of bad publicity regarding antenna reception problems. In fact, Apple did not say when it will be able to clear a backlog of orders to meet demand.

In a quarter in which the Cupertino, Calif., company introduced the iPhone 4 as well as the iPad, it notched a 61 percent jump in revenue to $15.7 billion compared with $9.73 billion for the year-ago period. Earnings, meanwhile, soared 78 percent.

Apple said profit was $3.25 billion, or $3.51 a share, for the just-concluded quarter. A year ago, the company recorded profit of $1.83 billion, or $2.01 a share. International sales accounted for 52 percent of the latest quarter’s revenue.

Once again, Apple dramatically outpaced Wall Street’s expectations. Analysts polled by Thomson One Analytics predicted earnings per share of $3.11 on revenue of $14.75 billion.

“It was a phenomenal quarter that exceeded our expectations all around, including the most successful product launch in Apple’s history with iPhone 4,” Apple CEO Steve Jobs said in a statement. “IPad is off to a terrific start, more people are buying Macs than ever before, and we have amazing new products still to come this year.”

Apple’s bottom line benefited from a record number of sales of its traditional Macintosh computers — even as the company launched its iPad tablet, which observers thought might cut into sales of laptops.

“The biggest surprise of the quarter were Mac sales,” said Needham & Co. analyst Charles Wolf, who had predicted Apple would sell about 500,000 fewer laptops and desktops than the 3.47 million it did. “I was hopelessly low. You have to believe the iPhone is having a halo effect (on Mac sales). The growth outside the United States is just phenomenal.”

Apple’s Mac unit sales soared 33 percent from the same quarter last year — while the company also sold 3.27 million iPads, a sign, Wolf said, that the tablets have “instantly” gone mainstream.

“It’s a jaw-dropper,” Apple Chief Operating Officer Tim Cook said on a conference call with analysts.
The company, though, is not sure if the trend will continue.

“We have only been selling (iPads) for three months,” Cook said. “The real answer is, it’s too early to tell” if iPads will eventually cannibalize Macs.

The company sold 8.4 million iPhones in the quarter, a 61 percent jump from the year-ago quarter. The hot-selling device has created weeks-long backlogs.

But the recent controversy over the iPhone 4 reception problems — the phone’s exposed antenna makes it susceptible to dropped calls if held a certain way — apparently did not slow sales of the device, which first hit the market June 24.

On Friday, Jobs interrupted a Hawaiian vacation to address the issue after Consumer Reports failed to give the iPhone 4 its coveted buy recommendation, though the magazine called Apple’s device the best smart phone on the market. To tamp criticism, the company co-founder said Apple will offer free cases to consumers at least through Sept. 30.

Asked if the antenna controversy, which Jobs dubbed “antennagate,” was denting sales, Cook said: “Let me be very clear. We are selling every unit we make.” He added, “My phone is ringing off the hook from people who want more supply. It’s hard to test the question.”

Cook reiterated what Jobs said last week — that fewer iPhone 4s have been returned in the first three weeks than were units of the previous model, the iPhone 3GS model, in its first three weeks on the market. Returns related to antenna problems “are extremely small,” he added.

Nonetheless, Wolf said, “There will be a lingering concern among investors over the antennagate issue. The way Apple dispels this is by coming out with a huge number of iPhone sales for the September quarter. Then everyone will forget about it. And I think it’s going to happen.”

Apple sold 9.41 million iPods during the quarter, an 8 percent drop from the year-ago quarter. Apple has long said it expected the iPhone to cut into iPod sales.

For the current quarter, Apple forecast earnings per share of $3.44 on revenue of $18 billion. Gross margin was 39.1 percent compared with 40.9 percent in the year-ago quarter.

Shares of Apple closed up $6.31, or 2.57 percent, to $251.89.

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