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Apple Q1 Results: Record Quarter, 1.25 Million Macs Sold [Update]

TMO Reports - Apple Q1 Results: Record Quarter, 1.25 Million Macs Sold [Update]

by , 4:45 PM EST, January 18th, 2006

Apple Computer officially announced results for its first fiscal quarter of 2006 of US$5.57 billion in revenue, $565 million in profits ($.65 per share), with 1.25 million Macs and more than 14 million iPods sold. This compares to revenue of $3.49 billion with profits of $295 million ($.35 per share) in Q1 of 2005.

Another comparison made by Apple CFO Peter Oppenheimer during Wednesday's conference call with financial analysts was the fact that Apple's Q1 2006 revenue exceeded revenue for the entirety of fiscal 2002, when Apple turned in revenue of $5.74 billion.

"We are thrilled to report the best quarter in Apple's history," Apple CEO Steve Jobs said in a statement. "Two highlights of an incredible quarter were selling 14 million iPods and getting ready to launch our new Macs with Intel processors five to six months ahead of expectations. We are working on more wonderful products for 2006, and I can't wait to see what our customers think of them."

Apple is projecting sales of $4.3 billion for Q2 2006, and earnings of $.38 per share. This includes an estimated $.04 per share expense impact from non-cash stock-based compensation, translating to non-GAAP EPS of about $.42. As we reported earlier Wednesday, this was lower than consensus estimates of $4.63 billion in revenue and $.48 per share in earnings.

International sales accounted for 40% of Apple's sales, and gross margins came in at 27.2%, lower than Q1 2005's 28.5%.

Macintosh

Mac sales rose by 20%, 1.254 million units sold compared to 1.046 million in Q1 2005. Mac and Mac software-related sales accounted for 41% of total revenue for the quarter, a lower mix than in past quarters due to record iPod holiday sales. The company sold some 587,000 iBooks and PowerBooks during the quarter, an increase of 39% over Q1 2005. Apple also sold 657,000 desktops, which represented an increase of 7% year-over-year.

Mr. Oppenheimer told analysts that unit sales exceeded internal expectations, which the company had lowered due to the ongoing transition to Intel processors for the Macintosh computer line. Any negative impact from that transition was "lower than expected," though again the company declined to offer specifics.

Heading into the current quarter, Apple had less than 4-5 weeks of retail channel inventory. Normally Apple tries to maintain a higher level of channel inventory, but reduced its target because of the expected introduction of the MacBook Pro and Intel-powered iMacs during Macworld.

Apple also told analysts the company would be airfreighting MacBook Pros to customers in order to meet demand. Airfreight is more expensive than shipping via boat, and Apple has often had to use such means to meet initial demand of new products.

Music

iPod sales rose sharply by 207%, with the company selling 14.043 million iPods in the December quarter, up from what was then a record 4.58 million iPods in Q1 2005. Overall, Apple's music business accounted for 59% of revenue.

While shipments increased during the last two weeks of December, Apple executives told analysts that the company was unable to meet all of the demand for the iPod during the quarter.

The iTunes Music Store operated at a profit during the quarter, though again, the company refused to divulge the specifics. The music download business is thought to have very low margins for retailers, with the lion's share of revenue going to the labels, while artists and retailers get a much smaller percentage.

During December 2005, Apple sold some 3 million downloads per day, helped in part by a lot of iTunes gift cards that were purchased for the holidays.

There are 35,000 retail outlets selling iPods throughout the world, though not all outlets sell the entire iPod product line. That represents an enormous retail footprint for Apple, and one that is far larger than the Macintosh's retail presence.

Retail

Apple's retail initiative of brick and mortar Apple Stores continues to be a success, and the company reported some $1.072 billion in sales out of its retail stores. This is up from $560 million in the year-ago quarter.

The company claimed $90 million in profits from its retail operations, and said that manufacturing profits from Apple products sold through its stores was $199 million, up from $99 million in the year-ago quarter.

Apple opened 11 new stores during the December quarter, and ended Q1 with 135 total stores. It plans on opening another 40 stores during fiscal 2006.

Cash

Apple ended the quarter with $8.7 billion in cash and short-term investments, up from the previous quarter. This included a $750 million prepayment for NAND memory for future iPod units in deals with Samsung announced in 2005, and without that payment, cash reserves would have increased by a total of $1.2 billion.

AAPL

AAPL closed lower in pre-announcement trading, losing $2.22 (-2.62%), to close at $82.49 per share. Trading was strong with some 43.3 million shares trading hands.

AAPL dropped more than 5% after Wednesday's announcement to $78.29 per share, but had recovered some of that loss as of this writing to trade in the $80 per share range. Expect a raft of research notes from analysts on Thursday.

We have a further breakdown in Apple's numbers in a separate report.

[Update: This story was updated with addtional information from the company's conference call with financial analysts.]

*In the interest of full disclosure, the author holds a small share in AAPL stock that was not an influence in the creation of this article.  


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