Apple Polishes Off Estimates

Revenue surges by 37%, and first-quarter guidance surpasses expectations.
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Updated from 9:41 a.m. EDT


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shares jumped early Thursday after the company blew away Wall Street expectations for its final quarter of fiscal year 2004, helped along by soaring iPod sales and sharp increases in retail store sales.

If that weren't enough, the company late Wednesday issued earnings guidance for the first quarter that was wildly above the consensus estimate.

Including the latest report, Apple has now beat consensus estimates seven quarters running.

"Apple's strong performance and higher guidancewere consistent with our belief that its momentumremains intact -- and hence its valuation should aswell," wrote analyst Gene Munster of Piper Jaffray in amorning note Thursday.

As expectations keep increasing, Applehas little room for error, he acknowledged. And growthwill likely decelerate after the December quarter ascomparisons become more difficult.

Still, he said Apple's "continued execution andits near-term visibility provide justification forcontinued optimism." Munster increased his fiscal 2005 earnings estimate to $1.17 on $10.2 billion inrevenue, up from $0.95 on $9.5 billion.

In early trading Thursday, Apple shares vaulted $3.11, or 7.8%, to $42.86.

"The September quarter was well ahead of even the most optimistic expectation, and the December quarter guidance was at the absolute high end of what people had been hoping for," summed up Robert Cihra of Fulcrum Global Partners.

Though a few tech watchers have begun speculating that Apple's ever-spiraling stock price may hit a ceiling, Cihra said the company's results support further room for upside. "The valuation has increased obviously, but the company's been posting monster improvements in earnings. It's not just that the multiple has gone up; the numbers have gotten better and are going higher still. I don't think the stock is quote 'too expensive' at all."

The Cupertino, Calif.-based computer outfit posted a profit of $106 million for the quarter ended in September, more than double last year's $44 million for the same period.

Per-share profit amounted to 26 cents including an after-tax restructuring charge of $4 million.

Excluding the charge, net profit would have amounted to $110 million, or 27 cents per share, trouncing Wall Street estimates for an 18-cents-a-share profit.

Quarterly revenue jumped to $2.35 billion, up 37% from last year's levels and well above the consensus estimate for $2.15 billion in revenue, according to Thomson First Call.

Gross margin stood at 27%, up from 26.6% in the year-ago quarter.

"We are thrilled to report our highest fourth quarter revenue in nine years," said CEO Steve Jobs in a statement. He said the company had shipped over 2 million iPods and retail store revenue soared 95% from last year's levels. Apple's new iMac "is off to a great start," he added.

Apple shipped 836,000 Macintosh units in the quarter. Executives said on a post-close conference call that computer-based revenue was up 9% year-over-year, even though limited supplies of IBM-produced G5 chips constrained the supply of Apple's PowerMac and iMac computers.

As a result of the shortages, combined with strong demand for the computers, Apple's inventory levels fell well below their target level of four weeks, the company said.

Apple shipped just over 2 million iPods in the quarter, helped along by expanding international sales, better availability of hard drives for the gadgets, and wider distribution of the music players domestically as


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began selling the devices under its own brand in September.

H-P-branded iPods accounted for about 6% of total iPods sold.

Apple said average revenue at its retail stores stood at $4.6 million, up 48% from last year's levels. Starting this weekend, it will open half a dozen retail mini-stores around the country, testing out a new, smaller venue in which to showcase its products.

Back in the June quarter, better-than-expected computer sales offered the first piece of evidence that the iPod's breakaway success had prompted a related pickup in purchases of Apple Mac computers. Many analysts expect the iPod's popularity will continue to spur sales in the core computer business, which accounts for over 60% of Apple's revenue.

Apple also guided for revenue of between $2.8 billion and $2.9 billion in the first quarter of fiscal 2005 ending in December, with earnings per share of 39 cents to 42 cents.

Analysts were expecting Apple to guide for first-quarter earnings of 28 cents a share on $2.52 billion in revenue.