Apple Crushes Expectations on Mac Sales; 3Q Profit Soars 73 Percent

Apple Inc. (AAPL) on Wednesday said its quarterly profit rose 73 percent from a year earlier, zooming past expectations on strong Macintosh computer sales and helping to send its shares up nearly 10 percent.

Apple said it expected to sell one million iPhones by the end of its current quarter, and reiterated its goal of selling 10 million of the devices globally in 2008.

It also reported a surprising rise in profit margin, citing lower prices for components like memory chips, strong direct sales, and more purchases of higher-end products.

Shares of Apple, which had been up 62 percent since the start of the year when Chief Executive Steve Jobs unveiled the iPhone, rose 9.6 percent to $150.70 after the report.

"There's no question that Apple is on a roll," said Tim Bajarin, president of Creative Strategies. "Between the iPhone and the iPod, they continue to get a halo effect that brings people into the Apple stores, which in turn gets more people interested in Macintoshes."

Combining a wireless phone, Web browser and media player that offers service over AT&T Inc.'s (T) mobile network, the iPhone is Apple's attempt to build a third product line that will equal its computer and iPod businesses.

The iPhone went on sale on June 29 in the most anticipated product launch in years, but its financial impact was negligible because it was available only in the final days of the quarter and Apple books the sales as subscription revenue over two years.

Apple sold 270,000 iPhones in the two days, near the low end of analysts' expectations that had ranged from a quarter of a million units up to 700,000. Apple executives took pains to note it took nearly two years for the company to sell one million iPods after an October, 2001, debut.

Apple's net income for its fiscal third quarter ended June 30 was $818 million, or 92 cents per share, compared with $472 million, or 54 cents per share, a year earlier.

Apple had been expected to earn $644.4 million, or 72 cents per share, according to the average analyst forecast on Reuters Estimates. Revenue was $5.41 billion, up 24 percent from $4.37 billion a year earlier and more than the $5.29 billion expected by Wall Street.

Gross profit margin was 36.9 percent, up from the 35.1 percent the company achieved in the previous quarter, a show of strength that the company had not predicted.

Apple also forecast earnings of about 65 cents per share on revenue of about $5.7 billion for its fiscal fourth quarter, a cautious outlook it attributed to rising component costs and back-to-school promotions.

"It's a combination of being conservative and keeping their powder dry if they need to support the launch of the iPhone," said Erick Maronak, chief investment officer of Victory Capital Management.

Apple said it shipped 1.76 million Macintosh computers in the quarter, a rise of 33 percent from a year earlier as it continued to outpace growth in the broader computer market. Sales of notebook computers rose 42 percent.

Shipments of iPods were 9.82 million, up 21 percent from the same period a year earlier and in line with expectations.

"The iPod business needs some product refreshing to get it going again. We will likely see them before Christmas," said Shaw Wu, an analyst with American Technology Research.

Apple shares rose 9.6 percent to $150.40 in after-hours trade from a close of $137.26 on Nasdaq. Based on the closing price, the shares trade at 30 times Apple's expected 2009 profit, a level most analysts say represents a rich valuation.