Apple Stock Surges on Huge Profit Jump

The iPod craze apparently hasn't peaked just yet.

Countering Wall Street fears that sales of the ubiquitous personal music player might begin to wane, Apple Computer Inc. (AAPL) said the industry-leading device helped fuel a nearly 48 percent profit increase.

Company shares surged more than 8 percent in late-session trade Wednesday on the earnings report.

For its fiscal third quarter ended July 1, Apple's profit rose to $472 million, or 54 cents a share, up from $320 million, or 37 cents per share in the same period of 2005. That was 10 cents per share better than the mean forecast of analysts surveyed by Thomson Financial.

Sales grew to $4.37 billion from $3.52 billion last year. That number was within the range of Apple's April forecast for quarterly sales of $4.2 billion to $4.4 billion, but fell shy of the mean estimate of $4.4 billion among analysts.

The Cupertino, Calif.-based company shipped 1.3 million Macintosh computers and 8.1 million iPods — the overwhelming leader among digital music players — during the quarter.

The numbers represent a 12 percent increase in Mac sales and more than a 32 percent jump for iPods from the third quarter in 2005.

The "iPod continued to earn a U.S. market share of over 75 percent and we are extremely excited about future iPod products in our pipeline," CEO Steve Jobs said.

Apple also said it expected revenue of about $4.5 billion to $4.6 billion in the fourth quarter and earnings of between 46 cents and 48 cents a share. But Chief Financial Officer Peter Oppenheimer said the company's profit margins will be smaller in the fourth quarter because it planned an "aggressive" back-to-school marketing campaign.

The company reported the results after financial markets closed Wednesday. Shares jumped 8.4 percent, or $4.56, to $58.66 in aftermarket trading on news of the report. Earlier, the stock rose $1.20, or 2.3 percent, to close at $54.10 on the Nasdaq Stock Market.

"It was a great quarter," said Jane Snorek, an analyst with Minneapolis-based First American Fund. "Mac sales were strong."

She also noted that iPod sales aren't slowing as fast as some analysts had feared.

However, another analyst asked about the company's future product plans.

"There is a lot of concern out there about what sort of plans you have," said Bear Stearns analyst Andrew Neff. "How innovative can innovative be?"

Oppenheimer declined to discuss products under development, but expressed confidence that future products would be a hit with consumers.

"We are very confident," Oppenheimer said. "I don't imagine that the creativity at Apple can ever be lost."

The company also said initial results of its investigation into the back dating of employee stock options didn't affect the quarter's results.

"However, if additional irregularities are identified by the independent investigation, a material adjustment to the financial information could be required," the company said in a press release.

Last month, Apple said it found irregularities in the way it issued stock option grants, and was conducting an independent investigation.

Apple is one of a growing number of companies under internal or Securities and Exchange Commission investigations for possibly backdating stock options to time them at low prices, thus boosting executive payouts.

The troublesome stock options included a batch that went to Jobs, but the chief executive canceled those awards in March 2003. Jobs surrendered all of his outstanding options in exchange for 5 million shares of Apple stock now worth $295 million.

Apple said it has hired an outside lawyer to lead an investigation into its past stock options and has notified the SEC. An Apple spokesman declined to comment on that issue.