Apple reports big gains in sales, profits for second quarter

A quarter that saw Apple release a new iPad, revamp its MacBook Pro line, and broaden the reach of its iPhone turned out to be financially rewarding for the company. For its fiscal second quarter, Apple reported sales of $24.67 billion and net profit of $5.99 billion, according to figures announced by the company Wednesday.

Apple’s quarterly revenue, a record figure for the second quarter, beat year-ago sales by 83 percent. Profits also set a record for the quarter, and improved 95 percent over the $3.07 billion in profit the company tallied in the 2010 second quarter.

Apple earned $6.40 per share, beating last year’s second-quarter earnings of $3.33 per share by 92 percent. Apple’s performance also blew away analyst estimates. Analysts were looking for the company to report $23.34 billion in revenue and earnings of $5.36 per share for the quarter.

Credit the usual suspects for Apple’s strong quarter. In a conference call with analysts, chief financial officer Peter Oppenheimer credited record iPhone sales, strong growth in the Mac business, and “very robust demand for the iPad” for driving the company’s strong quarterly performance.

Record iPhone sales

Apple says it sold 18.65 million iPhones during the quarter, which ended March 26. That’s an increase of 113 percent from the 8.75 million phones Apple sold over the same period last year. The company recorded recognized revenue of $12.3 billion in the just-completed quarter, an increase of 126 percent.

The iPhone expanded to a new carrier in the U.S. during the March quarter, as Verizon began offering a version of the iPhone 4 that’s compatible with its cellular network. That certainly helped drive iPhone sales in the U.S., though Apple didn’t provide specifics. Chief operating officer Tim Cook also noted that the iPhone’s other U.S. carrier, AT&T, reported an increase in iPhone activations during the quarter, despite increased competition from Verizon. Between AT&T and Verizon, Apple’s iPhone business in the U.S. grew 155 percent, according to Cook.

Apple also saw strong growth in China for the iPhone, where sales of the phone increased nearly 250 percent, according to Cook.

All told, Apple ended its fiscal second quarter with the iPhone available in 90 countries through 186 carriers, compared to 185 carriers in 90 countries at the end of the first quarter; Oppenheimer noted that there had been some carrier contraction during the last three months that offset the addition of new partners such as Verizon in the U.S., SK Telecom in South Korea, and Saudi Telecom in Saudi Arabia.

Mac sales

Apple sold 3.76 million Macs during the second quarter, an increase of 28 percent over the 2.9 million Macs sold during the year-ago period. That set a record for Mac sales during the March quarter, Oppenheimer said. In particular, Mac sales compared favorably with the overall PC market, which contracted at a rate of 3 percent during the quarter, according to figures from IDC. That marks the twentieth consecutive quarter that Apple has outgrown the PC market, although sales numbers were below those posted by Apple for the last two quarters.

Laptops continue to be the big driver for Mac sales, with the 2.7 million portables making up 73 percent of the Macs sold during the quarter. In addition to the February revamp of the MacBook Pro line, Apple also reaped the benefits of last year’s MacBook Air updates. The 1 million desktops sold were only more than during one of the last five quarters.

“Customer response has been excellent,” Oppenheimer told analysts.

Apple also made notable gains internationally with Macs, seeing 76 percent growth in the Asia Pacific region on a year-over-year basis.

The iPad 2 arrives

The iPad 2 shipped at the end of the quarter, on March 11 in the U.S. and on March 25 in 25 additional countries, which helped spur sales of Apple’s tablet. All told, Apple sold 4.69 million iPads during the quarter, though it didn’t break down those sales between the iPad 2 and the original model.

“We purposely aren’t giving that [breakdown] because we don’t want to help out any of our competition,” Cook told analysts. “But I would tell you, I wish we could have produced a lot more iPad 2s, because there were certainly a lot of people waiting for them.”

In total, Apple has sold 19.48 million iPads since the product was released in April 2010. Cook says Apple will ship the iPad 2 to 13 more countries next week.

“Customer interest has been tremendous,” Oppenheimer said of demand for the iPad 2. “We’re working hard to get it into the hands of customers as soon as possible.”

Indeed, constrained supplies appeared to be the only blemish on Apple’s iPad business, as the company struggled to keep its inventory up. “We sold every iPad 2 we could make in the quarter,” Oppenheimer said, “and we would have liked for the quarter to have ended with more iPads in the channel.”

iPod drops and iTunes gains

Speaking of blemishes, iPod sales continued their decline, though Apple says that the product line’s performance was ahead of expectations. The company sold 9.02 million iPods during the quarter, a drop of 17 percent from last year’s second-quarter figures. More than half of the iPods sold during the quarter were the iPod touch, according to Apple’s figures.

However, despite that decline, Oppenheimer said that the total iPod sales were ahead of Apple’s expectation, and that the iPod remains the top-selling MP3 player in most of the countries where that data is tracked, and continues to hold onto its market-leading position in the U.S.

Apple found a silver lining in the performance of its iTunes online business, however. That segment tallied $1.1 billion in revenues, its best quarter ever, according to Oppenheimer.

Retail plans

With Apple’s brick-and-mortar retail outlets approaching their 10th anniversary next month, Oppenheimer noted that the retail chains should see their 1 billionth visitor in a matter of days. During the second quarter, 71.1 million people visited the app store, up from 47 million visitors in the 2010 second quarter.

Revenue from the retail stores grew 90 percent to $3.19 billion. Apple says it sold 797,000 Macs through its retail outlets, an increase of 32 percent from last year. About half of the Macs sold at the Apple Store were to newly minted Mac users.

Apple still plans to open 40 new stores during the 2011 fiscal year, with two-thirds of those outlets opening outside of the U.S. That includes a fifth Apple Store in China.

Forecasts

For the third quarter ending in June, Apple expects revenue of about $23 billion and earnings per share of $5.03. That compares to $15.7 billion in revenue and earnings of $3.51 a share for the third quarter of 2010. Prior to Wednesday’s call, analysts were looking for sales of $23.8 billion and earnings of $5.25 per share for the June quarter.

Updated at 2:55 p.m. PT with more information throughout the article.
Updated at 3:24 p.m. PT with more information on iPod sales, Apple’s retail performance, and forecasts for the coming quarter.
Updated at 3:43 p.m. PT with more information throughout the article.
Updated at 4:23 p.m. PT with comments from Tim Cook.

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