TMO Reports - Apple Execs "Very Happy" With Q2, but Less Bullish Going Forward

by , 6:10 PM EDT, April 13th, 2005

Apple Computer executives told market analysts Wednesday they were "very happy" with fiscal second-quarter results, but are somewhat less optimistic about the current quarter as profit margins get squeezed from increased compeitition.

Apple Chief Financial Officer Peter Oppenheimer said he is predicting gross profit margins of 28.5% in Q3, off by more than 1% from the 29.8% profit margin in the previous quarter. He said reasons for the fall in earnings will include lower margin sales to education, fewer sales of higher priced products like Power Macs, and a full quarter of impact from recent iPod price reductions.

Despite these factors, Mr. Oppenheimer said there will be an "offset by better software sales," in the fiscal third-quarter, including sales of Mac OS X 10.4 'Tiger', which goes on sale April 29.

Mr. Oppenheimer admitted that the company's growth has been "above" its targets, and as a result, Apple can't sustain previous levels.

"The company for the last couple of quarters has been growing at about 70% and our gross margins have been above our targeted 27% to 28%, which has put the operating margin well above 7%," he said.

"I don't think the revenue will continue to grow at these levels forever," Mr. Oppenheimer said. "I would hope we could grow our revenues at 15% or better. The approximate 30% gross margin that we set in the March quarter is above our historical trends and above the target I have provided. I don't believe we can sustain it."

Apple reported Wednesday a Q2 profit of US$290 million, or $.34 per diluted share -- 10 cents better than the street estimate.

Other highlights of the conference call included: