Apple "beat the street" again with its latest financial results thanks in part to the best-selling iBook and new Apple retail stores. Though third quarter results dropped sharply from a year ago, they were stronger than Wall Street expected as sales of new products helped boost profit.
Apple posted a net profit of US$61 million, or $.17 per diluted share, compared to a net profit of $200 million, or $.55 per diluted share, achieved in the year ago quarter.
Revenues for the quarter were $1.475 billion, down 19 percent from the year ago quarter, and gross margins were 29.4 percent, compared to 29.8 percent in the year ago quarter. International sales accounted for 44 percent of the quarter's revenues.
The U.S. and Japan were the areas of Apple's strongest sales. Europe was the weakest link.
"Europe was the last region to show the effect of the recent economic downturn, if you look at things from a global perspective," Fred Anderson, chief financial officer for Apple, said. "During the quarter, it felt the effects we were feeling 6-9 months ago in the U.S. However, the region seems to be stabilizing now."
The quarter's results included a $7 million favorable after-tax impact resulting from net equity investment gains, offset by an after-tax charge of $7 million related to the purchase of in-process research and development associated with the acquisition of PowerSchool. These non-recurring items had a net neutral impact on the reported results. Apple shipped 827,000 Mac units during the quarter.
"We had a great education quarter, with significant year over year growth, and a great iBook quarter, shipping over 182,000 of our new wildly popular consumer and education notebooks," said Steve Jobs, Apple's CEO. "Perhaps the most strategic event of the quarter was the launching of Apple Retail Stores, with the very successful openings of our first two stores, and plans to open 23 more in 2001."
Year-over-year sales grew 7 percent as Apple started to see positive results of its renewed focus on education. Anderson attributed the boon to strong leadership, a rejuvenated sales force and the popularity of the iBook in the education sector.
"When you grow seven percent in unit sales year-over-year in a tough economic year, we think that indicates continuing favorable results," Anderson said.
As has been the tradition, Apple's education sales were strongest in the K-8 segment of the education market. Anderson said that Apple expects to see sales of its professional Power Mac line catch new fire over the next two quarters as more applications come to Mac OS X and users choose to upgrade to more powerful systems.
"We're delivering solid profitability while maintaining lean channel inventories in a weak economic environment," said Fred Anderson, Apple's CFO. "Our balance sheet remains very strong, with over $4.2 billion in cash, and we are targeting a slight sequential increase in revenues and earnings per share in the September quarter."
Apple now has less than $19 million of its own inventory -- about two days worth -- in stock, Anderson said. Don't look for subsequent inventory reductions as Apple is "pretty much where we want to be," Anderson said.
The consumer market was the weakest area of Apple sales in the quarter despite the popularity of the new iBook. Apple's online store continues to thrive, garnering 40 percent of Apple's overall sales as compared to 34 percent during the second quarter.
Apple is also bullish on its new retail stores, Anderson said. Another 23 stores will open across the U.S. in August and September. The chief financial officer said that several resellers believe that Apple retail stores can complement their efforts, though a "few are concerned" when the stores are opening in their "own backyards."
Looking ahead, Anderson said Apple expects revenues and unit sales for the financial quarter ending in September to up slightly.
"We feel confident in our ability to achieve lean channel inventory of less than four weeks and to see incremental quarterly increases in revenue," he added. "We feel we've got the right formula to be in a good position when the economy improves."
This story, "Notes from Apple's earning conference call" was originally published by PCWorld.