IPod ‘Halo Effect’ Lifts Apple Profit
How do you like them iPods?
Strong sales of the sleek digital music players propelled Apple Computer Inc. to its biggest fiscal fourth-quarter profit in nine years and cast a “halo effect” that boosted the company’s core desktop and laptop computers, executives said Wednesday.
Apple sold 2.02 million iPods during the quarter -- more than five times as many as a year earlier -- accounting for nearly 25% of overall revenue, the Cupertino, Calif.-based company reported.
“This quarter was an iPod quarter,” said Shannon Cross of Cross Research, an independent equity research firm in Short Hills, N.J.
And there’s no sign that consumers will be changing their tune with the crucial holiday shopping season approaching, analysts said. A Piper Jaffray survey of 600 high school students found that after clothes, money and a car, the thing U.S. teenagers want most is an iPod.
“It was really surprising,” said Gene Munster, the analyst who conducted the survey. “They didn’t say music player. They said iPod.”
Apple said its fiscal fourth-quarter profit was $106 million, or 26 cents a share, more than double the $44 million, or 12 cents, a year earlier. Revenue in the three months ended Sept. 25 rose 37% to $2.35 billion.
For the full year, Apple earned $276 million, or 71 cents a share, on sales of $8.28 billion. That was up from a profit of $69 million, or 19 cents, on sales of $6.21 billion in its 2003 fiscal year.
Chief Financial Officer Peter Oppenheimer credited the iPod with drawing new customers to Apple’s retail stores and boosting sales of its Macintosh computers.
The number of Mac buyers at Apple stores who are first-time computer users, or who are switching from PCs using Microsoft Corp.’s Windows operating system, has held steady at 45% to 50% despite assumptions that that figure would decrease over time, Oppenheimer said.
“I could not be happier with how the September quarter turned out,” Oppenheimer said in a conference call with analysts.
Sales in the current quarter are likely to be $8.2 billion to $9 billion, Apple said, which would be more than four times as high as last year and far above analysts’ expectations.
The iPod is dominating the market, accounting for nearly two out of every three digital music players sold in the U.S., said Steven Lidberg, a digital media analyst with Pacific Crest Securities in Portland, Ore.
“These guys posted 2 million units, which is the number we were looking at for a seasonally strong December quarter,” Lidberg said. “Expectations for Apple were high going into today, but they blew the numbers out.”
The results lifted Apple shares nearly 7% in after-hours trading to $42.41. Before the earnings were released, the stock rose $1.46 to $39.75 on Nasdaq. Demand for the iPod, unveiled in 2001, has helped make Apple one of the best-performing stocks in the Standard & Poor’s 500 index this year.
Sales in the fourth quarter included for the first time iPods sold by rival computer maker Hewlett-Packard Co., which offers them under an agreement with Apple. It was the first time the HP-sold devices showed up in Apple’s results.
Apple’s sales of PowerMac and newly redesigned iMac desktop computers were constricted by a shortage of G5 microprocessors supplied by IBM Corp. Oppenheimer said he expected to achieve a balance of supply and demand for G5-based computers this quarter, with the possible exception of the high-end 2.5-gigahertz model.
The company said it had 86 retail stores at the end of the fourth quarter and would have 100 locations by the end of the year, including a new concept “compact store,” six of which will open in undisclosed U.S. locations this weekend.
“One thing we’re watching is the fact that these guys are selling much more product directly to the consumer,” Lidberg said. “Historically, one of Apple’s challenges was visibility, and this retail initiative is really putting them in front of consumers.”
Bloomberg News was used in compiling this report.
