Apple Q3 Financials - Live Update

This concludes Macworld.com’s coverage of Apple’s conference call with financial analysts to discuss the company’s FY 2006 Q3 results.

Before taking questions in Apple's regular conference call with financial analysts, Apple CFO Peter Oppenheimer reiterated the major points of the company’s third quarter FY 2006 results. Apple reported its second highest quarterly revenues ever — $472 million in net profit on $4.37 billion in revenue, or $.54 per diluted share.

Those results compare to $3.52 billion in revenue for the same quarter last year, and a net profit of $320 million, or $.37 per diluted share — showing year over year revenue growth of 24 percent and earnings growth of 48 percent. Gross margin increased from 29.7 percent to 30.3 percent. And international sales accounted for 39 percent of Apple’s total revenue for the quarter.

Apple shipped 1.327 million Macs and 8.111 million iPods for the quarter — a 12 percent growth in Macs, and 32 percent growth in iPods, compared to the same quarter a year ago. Apple said the growth in iPod sales has been consistent with its expectations.

Oppenheimer said Apple continues to be happy with its continued migration of its Mac hardware from PowerPC to Intel Macs. He said that Apple will release Intel versions of its Power Mac and Xserve by the end of the year.

MacBooks and MacBook Pros have contributed to Apple’s increase of the U.S. laptop marketshare from 6 percent to 12 percent, according to a third-party report cited by Oppenheimer.

The iTunes Music Store includes more than 3 million songs, according to Oppenheimer. The iTunes Music Store generated $457 million in revenue for the quarter.

Retail stores demonstrated 29 percent growth for the quarter — $715 million. The company ended the quarter with 155 stores, Oppenheimer reported — the stores averaged $4.9 million each. More than 17 million customers came through the stores’ doors during the quarter. The new Fifth Avenue store in New York City has become Apple’s highest volume store. It’s open 24 hours a day, 7 days a week, and only opened in mid-May.

Oppenheimer also noted that nearly 50 percent of Mac buyers at Apple retail stores are new to the platform — a moderate increase over past quarters, perhaps explained by an increase in interest on Intel-based Macs and Apple’s advertising of Macs on prime-time television.

Offering guidance for Apple’s current quarter — Apple’s fourth quarter FY2006 — Oppenheimer estimated $4.5 to $4.6 billion in revenue. Apple COO Tim Cook told an analyst that Apple expects good prices on NAND/Flash memory, LCD panels and other components that have had volatile pricing in the past, which should hold the company’s Q4 gross margins in check.

Cook also noted that healthy iPod sales numbers were bolstered by ramping up of inventory for 1GB iPod nanos.

Average Apple retail store sales have actually dropped slightly — iPod sales were relatively flat year over year, according to Oppenheimer, thanks to an increased distribution channel for iPods, but Mac sales were up dramatically — on the order of 50 percent year over year.

Tim Cook admitted that Apple exited the quarter — the end of June, 2006 — with a backlog of orders for MacBooks, but said that the company expects to catch up shortly.

The number of Boot Camp — Apple’s software to run Windows on Intel Macs — downloads is “significant.” Cook said that Boot Camp definitely helps Windows switchers to consider the Mac more carefully as an option when it’s time to buy a new Mac.

When questioned about France’s DRM legislation, Oppenheimer reiterated Apple’s position that “state sponsored piracy” will negatively influence the music business. Apple hopes the “extremely competitive marketplace” can continue to decide how it will evolve.

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