Apple reports massive sales increase

Apple has announced forecast-beating first quarter results, spurred on by record sales of computers as well as its iPod digital media player.

The US computer maker also announced a 78 per cent surge in quarterly profit, outstripping Wall Street expectations, which the company credited to stronger-than-expected Christmas sales in the US and UK.

Apple said net profits for the first quarter of its financial year ending 30th December rose to a record $1.004bn (509m), from $565m in the same quarter the previous year - the first time it has exceeded $1bn in quarterly profit. Turnover for the quarter rose to $7.12 billion (3.63bn) from $5.75 billion.

The company shipped a record 1.61 million Macintosh computers, a 28 per cent increase on over the same quarter last year. The figures were helped by the early completion of the migration away from the PowerPC processor platform to Intel's x86 processors. The company also began shipping its first Intel-based Xserve server product and an Intel-based professional desktop product, both triggering an increase in sales to corporate customers and professional creatives such as designers, artists and those working on audio and video post-production. Mac sales have outgrown the overall PC market for eight of the last nine quarters.

Breaking down the Mac sales figure, laptop sales rose 65 per cent, while desktop units were actually down 4 per cent overall. This reflects weaker demand for some consumer desktop machines such as the Mac mini, while some professional users are still waiting for an Intel-based version of Adobe's Creative Suite software package before committing to new hardware purchases.

Gene Munster, an analyst at Piper Jaffray, said that the Mac figures demonstrated the seasonal impact on Mac sales, which have declined during the period in five out of the past six years. Mac sales are typically strong over the summer during the back-to-school shopping season.

Apple's European operations accounted for 491,000 Mac sales and $1.711bn in turnover.

As well as strong computer sales, Apple reported a 50 per cent rise in sales of its iPod device, shipping 21.1m units. The revised iPod Nano was the biggest seller over the Christmas period.

"We generated over $1.75bn in cash during the quarter and ended the period with a total of $11.9bn," said Peter Oppenheimer, Apple's chief financial officer.

Oppenheimer was bearish in his expectations for the second quarter, expecting growth in key products such as the iPod to slow in a saturated market. "Looking ahead to the second fiscal quarter of 2007, we expect revenue of $4.8 to $4.9bn" he said.

Analyst Shannon Cross from Cross Research said that while she was not concerned about the cautious forecast on future earnings, she was curious about whether Apple's first-quarter gross margin of 31.2 per cent was sustainable. The margin is significantly higher than those enjoyed by rival PC makers and underlines the premium price Apple is still able to command for its products.

Forthcoming products such as the Apple TV home media hub and the iPhone smartphone are unlikely to contribute to earnings until the second and fourth quarter respectively, while some analysts are concerned that Mac sales may be hit by potential customers delaying purchases until the release of the forthcoming Leopard operating system. Rival Microsoft is also due to release its new Windows Vista operating system to the general public on 30th January.

Shares in Apple were hit on the eve of the quarterly results when a spokesman for the US Attorney's Office for the Northern District of California confirmed that it was formally investigating Apple's on-going stock options backdating scandal. There remains concern that the investigation may lead to formal legal proceedings if any illegal activity is uncovered, and that such an investigation will again bring into question chief executive Steve Jobs' position at the helm of the company.

An internal investigation into the share options scandal, conducted by former US vice president Al Gore cleared Jobs of any wrongdoing at the end of December last year.

* You can view IT PRO's analysis of Apple's results, broadcast earlier today on CNBC Europe by clicking on this link.