Apple does it again in Q2

Apple Computer Inc. delivered once again in its second fiscal quarter Wednesday, returning a better-than-expected profit of $93m (£57m), or 60 cents a share, on sales of $1.53bn. Its shares closed up 1 1/8 to 35 3/4.
Written by Larry Barrett, Contributor

First Call consensus expected the Cupertino, California company to report a profit of 57 cents a share in the quarter.

Company officials said strong sales of its nifty iMac and Power Macintosh G3 computers were responsible for boosting overall unit growth by 27 percent compared to the year-ago quarter. iMac sales were especially strong in Japan. In fact, Apple officials said 89 percent of all new iMac buyers are using the Internet. Compared to the year-ago quarter, Apple has more than doubled its market share in both the U.S. and Japan.

It also closed out the quarter with $2.9bn in cash, a new company record. The $1.53bn in sales represents a 9 percent jump from the second quarter of 1998 when it pocketed $55m, or 38 cents a share, on sales of $1.4bn. International sales accounted for half of the company's sales this quarter.

During the conference call, CFO Fred Anderson said gross profit margins were 27.3 percent in the quarter, well above most analysts' estimates. "Looking ahead to the third quarter, we expect sequential increases in units shipped and revenue but margins will be flat to very slightly lower," Anderson said. "We also expect operating expenses to increase by $5m to $10m."

Apple also raked in $42m from non-recurring items including a $50m nugget from the sales of 2 million shares of ARM Holdings Plc. Including those one-time gains, Apple earned $135m, or 84 cents a share, in the quarter. "We are delighted that Apple grew faster than the industry in its sixth consecutive profitable quarter," said interim CEO Steve Jobs in a prepared release. "And Apple continues to lead the industry in asset management by ending the quarter with a record 1 day of inventory, beating Dell for the third quarter in a row."

Despite slashing prices on its iMac line to around $1,000 each, Apple managed to deliver an upside surprise. "Apple's doing all the little things right," said Louis Mazzucchelli, an analyst at Gerard Klauer Mattison. "They aren't getting hit like the other big PC guys because they aren't selling as much to the corporate market where the competition is intense."

Anderson said its sales over the Internet "continue to increase" but refused to give any specific numbers.

Apple shares hit a 52-week high of 47 5/16 in January after bottoming out at 25 in June. Despite its recent success, 10 of the 19 analysts following the stock rate it a "hold."

First Call consensus expects Apple to earn $2.68 a share in the fiscal year. Last quarter, it raked in $123m, or 78 cents a share, on sales of $1.7bn.

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