Strong iPhone sales boost Apple's profit

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Strong sales of Macs and iPhones helped push Apple's quarterly profit past Wall Street forecasts.

The company continued to defy the global recession with a solid 13 per cent jump in fiscal third-quarter net profit. It sold more than seven times as many iPhones - 5.2 million units of its latest signature device - as the year-ago period.

"The numbers are great. Their gross profits continue to surprise people and there is a return to product momentum ... a return to growth in the Mac business," said Andy Hargreaves, an analyst at Pacific Crest Securities. "And then the iPhone is doing tremendously well and that is a potent combination."

Apple reported a net profit of $1.23 billion, or $1.35 a share, for its fiscal third quarter ended June 27, up from $1.07 billion, or $1.19 a share, in the year-ago period.

Strong sales

Sales of Macs and iPhones both beat analysts' expectations, helped by product refreshes and lower prices, while iPod shipments were toward the low end of forecasts.

Apple said it sold 2.6 million Macs, up four per cent from a year ago, and 5.2 million iPhones in the June quarter, during which the company launched its third-generation iPhone 3GS and cut the price on the second-generation model to $99.

The iPhone is often thought of as more of a consumer device, but Apple said nearly 20 per cent of Fortune 100 companies have bought at least 10,000 units and it is unable to make enough iPhone 3GSes to meet demand - a shortfall the company said it is working to address.

Although the smartphone segment continues to grow more crowded with competitors, chief operating officer Tim Cook said on a conference call the company is "years ahead of other people" in its competitive position.

But iPods were a chink in its armor. Apple shipped 10.2 million iPods in the quarter, down seven per cent on the year. As iPod sales slow down, analysts see alternative catalysts on the horizon, with the expected launch of an iPhone in China and a rumored tablet PC or internet device in the works.

iPhone boost

The install base for the iPhone and the iPod Touch - which share operating systems - is now 45 million, Apple said.

“We’re making our most innovative products ever and our customers are responding,” said Steve Jobs, Apple’s chief executive, in a statement. “We’re thrilled to have sold over 5.2 million iPhones during the quarter and users have downloaded more than 1.5 billion applications from our App Store in its first year.”

Yet there had been some concern about margin pressure heading into the results, given the product price cuts and the trend of higher component costs.

Although Mac units rose, revenue in the segment fell eight per cent from a year ago as average selling prices came down, a trend seen throughout the PC industry.

But Apple posted a gross margin of 36.3 per cent, above the 34 per cent some analysts predicted. That compared with 36.4 per cent in the last quarter and 34.8 per cent a year ago. The company saw margins at 34 per cent in the September quarter.

Apple said component costs rose, but not as much as expected and it spent less than it planned in several areas.

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