Updated from 9:44 a.m. ESTApple's ( AAPL) bountiful holiday quarter gave its stock a growth spurt on Thursday. But analysts differed on whether the share price would continue to grow or taper off. In recent trading, the company's shares were up $6.35, or 9.7%, to $71.81. Prudential's Steven Fortuna had one of the sunniest forecasts, pushing up his price target to $93 from $75, and upgrading Apple to an "overweight" rating from a "neutral." "Although we typically are not reactive to company earnings, we are taking exception here as a result of the magnitude of the upside surprise and the accompanying upward revision to earnings. We believe that the company may have begun a market share breakout story that could last for the foreseeable future," Fortuna said in a research note issued on Thursday. (Prudential has not done recent investment banking business for Apple.) But others saw little upside in the stock after its big run on Thursday morning. Harry Blount at Lehman Brothers, for instance, took his price target up to just $73 from $66 and maintained his "equal weight rating on Apple shares. "While we believe that Apple will maintain strong product momentum, we believe the flow of good news has likely peaked short-term. Therefore we are increasingly wary of valuation," Blount said in a report on Thursday. (Apple has been a noninvestment banking client of Lehman in the last year.) In its first quarter ended Dec. 25, Apple earned $295 million, or 70 cents a share. That was more than quadruple the $63 million, or 17 cents a share, the company earned in the same quarter a year ago. Sales at the Cupertino, Calif.-based company jumped 74% to $3.49 billion. In contrast, analysts had predicted that Apple would post earnings of 49 cents a share in its just-completed quarter on $3.18 billion in sales, according to Thomson First Call. And it was above the guidance Apple gave in October, when the company projected it would earn 39 cents to 42 cents a share on sales ranging from $2.8 billion to $2.9 billion.
"We are thrilled to report the highest quarterly revenue and net income in Apple's history," Apple CEO Steve Jobs said in a statement. For the second quarter, the company said it expected to earn 40 cents a share on revenue of $2.9 billion. Analysts have forecast that Apple will earn 33 cents a share in its current quarter on $2.74 billion in sales. For the full year, analysts had predicted Apple will earn $1.53 a share on sales of $11.75 billion. Last fiscal year, the company earned $276 million, or 71 cents a share, on $8.28 billion in sales. Apple's announcement followed the closing bell on Wednesday. Earlier in the day, Apple shares closed regular trading higher by 90 cents, or 1.4%, to $65.46. The company's results were driven by sales of its iPod digital-music players. In the quarter, Apple shipped 4.58 million of the devices, up from 733,000 in the year-ago quarter. In terms of revenue, the company saw $1.2 billion in iPod sales in the holiday period, compared with $537 million in its fourth quarter and just $256 million in the year-prior period. "This was an unprecedented quarter for the iPod," said company CFO Peter Oppenheimer on a conference call. But Apple also saw a surge in computer sales in the quarter. Total sales of the company's Macintosh line increased to 1.05 million units, from 829,000 in the year-ago period. Revenue from those sales jumped to $1.61 billion in the holiday period, up 30% from the company's fourth quarter and 26% from its year-earlier quarter. Apple's strategy has been to use the iPod to draw new customers -- particularly users of PCs based on Microsoft's ( MSFT) Windows operating system -- to its Macintosh computers. As part of that strategy, the company on Tuesday
introduced a new cut-priced Macintosh -- dubbed the Mac Mini -- targeted at potential "switchers."
Analysts have been divided on whether the iPod will draw in new Macintosh buyers. On the conference call, Oppenheimer noted that this so-called halo effect is difficult to measure. But he noted that 40% of recent Mac buyers are either new to the platform or former Windows users. And the company's sales-growth rate last quarter was about double that of the PC industry as a whole, he said. "That would suggest that we got some increased consideration," he said. But the news wasn't all good from Apple. The company acknowledged that it is still facing supply constraints, a problem that has plagued it in recent quarters. Those constraints are affecting both its iPod line and one member of its line of Power Mac computers. Apple hopes to resolve the Power Mac issue, which involves the 2.5GHz G5 processor, by the end of its second quarter, said Tim Cook, executive vice president of worldwide sales and operations, on the conference call. Cook declined to say when the company would resolve its supply problems with the iPod, but suggested that it had more to do with demand for the device than actual supply, noting that the company's shipments were more than double the 2 million units it shipped in its fourth quarter. "I don't want to get into supply and demand and where those meet," Cook said, adding that "there is clearly not an assembly capacity issue with the iPod." Meanwhile, despite the overall increase in computer sales, the company saw a drop in sales of its PowerBook notebook line. Unit sales of the PowerBook line fell 22% year over year to 152,000 units, while revenue dropped 23% to $307 million. But company officials stressed that they look at overall computer sales, not the sales of any particular line. Sales of the company's lower-end iBook notebooks, which the company refreshed late last fall, appear to have replaced some of its PowerBook sales, they said.
In addition to Prudential, Bank of America also upgraded Apple's shares following its report. Earnings forecasts and price targets were raised at Merrill Lynch, CSFB, Fulcrum Global Partners and Piper Jaffray. Several firms noted the possibility that Apple's exploding iPod sales will translate into market-share gains in its personal computer business. Bank of America, which raised its price target to $85 from $75, estimated that if Apple's PC unit could capture 3.5% of the iPod's 2006 installed base, the segment's sales could jump 16%. The firm raised its 2005 earnings estimate to $1.87 from $1.64.