Apple ships 21 million iPods; nets $1 billion; outlook soft

Expectations for Apple earnings going into its fiscal first quarter results were high, but the company easily cleared the bar. The rub: Apple was conservative with its second quarter outlook.

A week after Apple unveiled its iPhone at Macworld, the company reported earnings of $1 billion, or $1.14 a share, on revenue of $7.1 billion. According to Thomson Financial, Wall Street analysts were expecting earnings of 78 cents a share on revenue of $6.4 billion. In the same quarter a year ago, Apple reported a profit of $565 million, or 65 cents a share, on revenue of $5.7 billion. The company said it benefited from favorable supply prices for items such as memory and LCD screens. 

The better-than-expected results were due to strong iPod sales in the quarter. To wit: Piper Jaffray analyst Gene Munster was expecting 16.5 million iPod units sold. Apple sold 21 million iPods. Apple, however, sold 1.6 million Mac computers and Munster was projecting 1.75 Macs sold in the quarter.

Apple was conservative with its outlook. The company is expecting revenue of $4.8 billion to $4.9 billion and earnings of 54 cents a share to 56 cents a share. Consensus estimates called for earnings of 60 cents a share on sales of $5.2 billion.

On a conference call with analysts, Apple CFO Peter Oppenheimer said the company's outlook is the result of seasonality in iPod sales. "We factored our view of customer demand and supply in the marketplace. In terms of seasonality, for iPods we've learned over the last three years that what drives results is innovative product launches and the December quarter. Unlike previous years (where there were supply constraints) iPod supply and demand were largely in balance. For Macs, Apple does a significant portion of consumer business in December. We expect education to ramp up in the spring."

What remains to be seen is whether Apple's outlook factors in a slowdown in iPod sales as the iPhone launch nears in June. There is a risk that the iPhone, which is essentially an iPod-phone bundle, will hurt iPod sales--especially video iPods--as its launch nears. Tim Cook, chief operating officer at Apple, was asked whether the iPhone would steal iPod sales. Cook said:

"It's too soon to tell. We believe we have a great lineup of iPods shipping today. We'll see. Perhaps we'll have more next quarter.

"At this point we're very sold on the 2.5G because it's much more widely deployed in the U.S. We don't comment on our roadmap, but obviously we'll be where the technology is over time."

By the numbers here's how Apple's quarter broke down:

$3.5 billion: First quarter revenue in the Americas, up 30 percent from a year ago.
$1.7 billion: Sales in Europe.
$1.1 billion: Sales in Apple's retail stores. Average revenue per store is $6.4 million.
1.5 million: Downloads of Boot Camp. 
$1.45 billion: Sales of portable Macs compared to $955 million for desktops.
$3.4 billion: iPod revenue in the quarter.
$634 million: Apple's sales in the "other music related product and services" category. Also known as mostly iTunes.
$347 million: Apple software sales.
$11.9 billion: Apple's cash tally at the end of the quarter.