Apple earnings: Mac sales rise but iPod sales slip for holiday quarter

Apple reports strong Mac sales but slipping iPod sales for the holiday quarter.
Written by Sam Diaz, Inactive
Apple, which is capturing headlines for a big Wednesday event that's expected to launch a new tablet device, put the speculation on hold long enough to report its first quarter earnings, which would include holiday sales. (Statement, Techmeme) On the surface, the company appeared to far exceed analysts expectations. The company reported a net profit of $3.38 billion, or $3.67 per share, on sales of $15.68 billion. Wall Street analysts has been expecting earnings of $2.07 per share on sales of $12.06 billion. But it's also important to note that Apple changed its accounting processes during the quarter, changing the way it counts sales of items such as Apple TV and iPhones, which are subscription-centric products. (more on that below) For a better understanding of how the company fared during the quarter, consider how the company did on key product sales. It sold 3.36 million Mac computers, a 33 percent jump over the year-ago quarter. It reported sales of 8.7 million iPhones, or 100 percent unit growth over a year ago. But iPods sales, which came in at 21 million during the quarter, actually represented an eight percent decline from a year ago. Mac sales exceeded estimates but iPhone sales missed targets, despite the company highlighting it as a strong performer. On the call with analysts, the company was asked if AT&T's service problems might be having an impact, as well. Chief Operating Officer Tim Cook responded by saying that AT&T has been a good partner and that, aside from a few key cities where AT&T has already acknowledged some service issues, Apple's own research finds that in the "vast majority of locations, iPhone customers are having a great experience." Going back to that accounting matter, CFO Peter Oppenheimer explained that, because of a change in accounting reporting rules, Apple now recognizes iPhone product revenue immediately, instead of over 24 months the way it did under the previous accounting method. The previous method was used because these particular products might come with future software upgrades or additional tools. A rule change allows the company to now report the sales of such products in two ways: 1) the hardware and software itself, which is recognized at the time of sale, and 2) the right to an upgrade, which has a value placed on it ($10 for Apple TV and $25 for the iPhone) that's spread over the 24 month period. In essence, that means nearly the full amount of the sale is recognized immediately. In addition, the company has gone back to fiscal year 2007 to revise all of its financial statements to reflect the new accounting method. For the March quarter, the company said it expects earnings in the range of $2.06 to $2.18 per share, compared to $1.79 for the year-ago quarter (revised to meet the new accounting method.) Sales are expected to be between $11 billion and $11.4 billion, compared to $9.4 billion (adjusted) in the year-ago quarter, Finally, the company was asked - but didn't offer any hints - about Wednesday's event. Specifically, analysts wanted to know if the guidance included sales of any, ahem, yet-to-be announced products. Execs didn't cave. But in a statement in the company's press release, CEO Steve Jobs seemed to give a bit of a wink with his prepared quote: "The new products we are planning to release this year are very strong, starting this week with a major new product that we're really excited about." Shares of Apple were up slightly in regular trading, closing at $203.07. Also see: Apple's December quarter: Big earnings an appetizer ahead of tablet
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