Update: Surge in iPod sales drives strong Q1 for Apple

The holiday season treated Apple Computer Inc. well this year. The company posted revenue Wednesday of $2 billion for its first quarter of fiscal 2004, its highest quarterly revenue in four years.

IPod sales more than tripled from the prior year’s quarter as Apple sold 733,000 digital music players, generating $256 million in revenue. Apple’s PC shipments also climbed during the quarter, to 829,000 units, bringing in revenue of $1.3 billion.

The Cupertino, California-based company turned a profit for the period of $63 million, or $0.17 per share, topping the $0.14 per share consensus estimate of analysts polled by Thomson First Call. Apple’s first fiscal quarter ended Dec. 27.

Apple Chief Executive Officer Steve Jobs hailed the quarter as an outstanding one for his company. Apple began its new fiscal year with “strong momentum,” especially around Mac OS X, which is now used by nearly 40 percent of Apple’s customers, he said.

Research firm Merrill Lynch & Co. Inc. said in a report issued before Apple’s financial release that it is pleased with Apple’s current strategy and product lineup.

“We think Apple has gotten its act together in focusing on core markets, building a mature management team, and most important innovating again,” Merrill Lynch wrote. “People will pay more for Porsches, but they have to perform.”

The introduction of iTunes for Windows during the quarter contributed to the strength of iTunes and iPod revenue, Executive Vice President and Chief Financial Officer Fred Anderson said in a conference call following the results announcement. ITunes users bought and downloaded 17 million songs from the service during the quarter.

Overall revenue rose 25 percent from the year-earlier quarter in the Americas, and also jumped in other parts of the world, Anderson said. It grew 48 percent in Europe, 13 percent in Japan and 55 percent in the Asia-Pacific region excluding Japan.

About two-thirds of iPod sales are made in the U.S., according to Apple.

In the education market, sales to higher education customers were up strongly year-over-year, while sales to other schools declined slightly.

For the current quarter, which ends in March, Apple expects another quarter of double-digit year-over-year growth in both revenue and earnings, with revenue growing to $1.8 billion and earnings per share coming in between $0.08 and $0.10, Anderson said. Later this month during the Super Bowl, Apple will announce a promotion with PepsiCo Inc. to give away 100 million songs from iTunes, and in February the company’s iPod mini will debut.

Apple executives crowed about last week’s announcement that Hewlett-Packard Co. will sell a portable music player based on the iPod and bundle iTunes with its PCs.

“We’re very optimistic that this is going to drive significant incremental business for our iPod and our iTunes Music Store,” Anderson said. It won’t pull potential customers away from Mac hardware because other multimedia applications such as iPhoto, iDVD and the new GarageBand are available only for the company’s own systems, Apple executives said. The company has no plans to make similar deals involving the other multimedia applications, they said.

A prediction by Jobs that 2003 would be the year of the portable has come true, Anderson said. Portable systems made up 48 percent of unit sales of Macintosh computers, he said.

Also during the quarter, the company set aside a reserve to deal with reported problems with white patches on some computer displays, raising warranty costs, Anderson said.

“For any new systems being shipped, the problems have been resolved,” he said.