Updated from July 19Shares of Apple Computer ( AAPL) rose after the iPod maker posted third-quarter earnings late Wednesday that were 10 cents a share better than anticipated. Investors smiled on the company's stock, even though Apple again offered disappointing guidance and reported relatively weak sales of the iPod, which has been key to the company's revival. In early Thursday trading, Apple was recently up $6.45, or 11.9%, to $60.55. Company officials, of course, pointed to the positive. In a statement, company CEO Steve Jobs, for instance, noted that sales of the company's Macintosh computers grew 12% in the quarter on a unit basis. "We're very pleased to report the second-highest quarterly sales and earnings in Apple's history," added company CFO Peter Oppenheimer in the statement. In the quarter ended July 1, Apple earned $472 million, or 54 cents a share. That was up from a year ago, when the company earned $320 million, or 37 cents a share. Sales grew 24% year over year to $4.37 billion. While earnings were well above the Street's estimates, sales were a bit shy. The consensus view of analysts polled by Thomson First Call called for earnings of 44 cents a share on sales of $4.4 billion. In April, Apple forecast earnings for the quarter of 39 to 43 cents a share on sales ranging from $4.2 billion to $4.4 billion. The company's profit was boosted by lower-than-anticipated component costs, higher-than-anticipated interest and other income, and lower-than-expected taxes due to a gain related to bringing home profit earned overseas, Oppenheimer said on a conference call. The tax benefit alone added about $24 million, or 3 cents a share, to the company's earnings, he said. But repeating a move the company made last quarter, Apple warned analysts that they needed to reduce their estimates for the current period. Apple expects to earn 46 to 48 cents a share in the quarter on sales ranging from $4.5 billion to $4.6 billion.
Analysts had predicted that Apple would earn 52 cents a share in its fourth quarter on sales of $4.94 billion. In the same period last year, the company earned $430 million, or 50 cents a share, on sales of $3.68 billion. The current period will include expenses related to stock options, while the year-ago period did not. Also weighing on fourth-quarter profit is the likelihood of a higher tax rate than in the just-completed quarter and a lower gross margin as a portion of revenue, Oppenheimer said on the call. Apple's results were driven in large part by the resurgence in sales of its Macintosh computers. Computer sales jumped 19% year-over-year in the quarter to $1.87 billion, marking the strongest revenue growth for the company's computer business in the last three quarters. On a unit basis, sales jumped 12% to 1.3 million, the most computers the company has ever sold in a 13-week quarter, Oppenheimer said on the call. Apple is in the middle of replacing the chips underneath its computers with processors made by Intel ( INTC). That move appears to be a good one, as Intel-based computers represented 75% of its sales in the quarter, Oppenheimer said. The Intel-based computers reached that big a portion of the pie, even though Apple updated one of its product lines with Intel chips partway through the quarter and still has one major line of computers running on legacy PowerPC chips from IBM ( IBM) and Freescale ( FSL). Indeed, the outlook for the company's computers could be bright, considering Apple ended the quarter with a backlog of orders for its new Macbook consumer notebook. In addition, the company believes that many of its professional customers are holding off purchasing a new system until Apple updates its professional desktops with Intel chips, which should happen later this year.
"We're happy with our progress and our developers' progress in the transition to Intel," Oppenheimer said on the call. While computer sales appear to be on the upswing, the company's iPod sales leveled off dramatically in the quarter. Sales fell on a sequential basis for the second straight quarter, the first time Apple has ever reported that happening, going back to fiscal 2002. On an annual basis, sales grew 36% to $1.5 billion, but that marked the slowest year-over-year sales growth Apple had ever reported. The sales were in line with Apple's expectations, Oppenheimer said, noting that the iPod still comprises 75% of the U.S. retail market for MP3 players, according to data from NPD. The company is also confident about its product pipeline, he said. "We continue to be enthusiastic about the iPod," Oppenheimer said. And, at least on Wednesday afternoon, investors felt the same about Apple.