Great Q3 for Apple but Future Concerns Dim Stock

Apple today reported a 31 percent growth in earnings over the prior year, but its stock was hammered in after-hours trading due to soft guidance going forward. The absence of enigmatic CEO Steve Jobs on the conference call with financial analysts didn’t help. Concerns about Jobs’ health have circulated since his keynote at the company’s Worldwide Developer’s Conference last month where he looked exceptionally thin.

Apple reported earnings of $1.07 billion, or $1.19 per share, on revenue of $7.46 billion. Income was 11 cents ahead of Wall Street’s expectations, according to a Thomson Financial survey of analysts.

For its most recent quarter just ended in June, Apple saw revenue of $5.4 billion and net income of $818 million, or $.92 per diluted share. Gross margin for this quarter was 34.8 percent, down from 36.9 percent in the second calendar quarter of 2007.

“We are very pleased with our results,” said Chief Financial Officer Peter Oppenheimer on a conference call with financial analysts. “We just reported the strongest quarter of Macintosh sales in the company history and just closed the first year of sales for the iPhone.”

However, Oppenheimer told the analysts that margin in the future quarter would be only 30 percent. Typical of Apple’s tight-lipped modus operandi, he wouldn’t spell out the reason for the expected drop, except to say Apple plans to introduce a competitive, high end product.

He was even more reticent to discuss Jobs, whose health has been the source of great concern since his gaunt appearance at the WWDC. When an analyst asked about Jobs’ health as gingerly as he could, Oppenheimer replied, “Steve loves Apple, he has no plans to leave. He serves at the pleasure of the board. As to his health, Steve’s health is a private matter.”

The result was an after-hours hammering on Apple’s stock. It lost $18 in after-hours trading for an 11 percent plunge in value.

Apple (NASDAQ: AAPL) said it shipped 2.5 million Macs in the second quarter, more in a single quarter than ever before in its history. That number is a 41 percent increase over 2Q07 and put Apple in third place behind HP and Dell on IDC’s list of PC sales for the second quarter.

In addition to the Mac sales, the company sold 11 million iPods during the quarter, representing 12 percent unit growth overall, with U.S. sales up 10 percent over last year and international sales up 15 percent over last year, according to Oppenheimer. For the quarter, Apple sold 717,000 iPhones compared to 270,000 in 2Q07.

Apple is recognizing revenue from iPhone 3G sales differently than its other products. Instead of recognizing the revenue when it is sold, the company has begun to recognize sales over a 24 month lifespan. The company changed this policy beginning on March 6, when it announced the iPhone Software Developer’s Kit, Oppenheimer said.

Retail boom

Its retail business continues to show tremendous growth, with 58 percent year-over-year growth and accounting for $1.44 billion in sales. Apple opened eight stores in the quarter, including its first in Australia, and one just opened this quarter in Beijing. It will have 242 stores total by the end of its fiscal year on September 30, 2008.

For the fourth quarter, Oppenheimer said revenue would be about $7.8 billion, a 25 percent increase over the fourth quarter of 2007. Earnings per share would be around $1. Fiscal 2008 revenue will be $32.4 billion, a 35 percent increase over fiscal 2007.

The one turkey for Apple remains Apple TV, which Chief Operating Officer Tim Cook called “a hobby for us.” He said its business is not as big as the iPod and Mac, an understatement, but that Apple remains committed to it.

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