Apple Posts Staggering Earnings but Warns They Won't Last

The maker of the Macintosh reported that during the latest quarter ending in March, it posted net profits of US$290 million, compared to $46 million for the same period last year, a staggering 530 percent increase. Diluted earnings climbed to 34 cents from six cents a share, a jump of 467 percent.

Looking Forward

However, the stock market can be a mean mistress. Not only do investors want to know what you have done for them lately, they also want to know what you are going to do for them in the future.

And in the case of Apple, the future just can't compete with the present.

Even before the company released what pundits knew would be monster earnings results after the close of the market yesterday, investors began backtracking on Apple's stock, knocking it down more than $1.50 for the day. Apple opened the market this morning down another $2.

Once a quarter's numbers are announced, they become history and investors are always looking forward. In that regard, CFO Peter Oppenheimer had some sobering news for analysts during a conference call with analysts held by the company yesterday.

"I don't think that the revenue will continue to grow at these levels forever," he said. "I would hope that we could grow our revenues at 15 percent or better."

"The approximately 30 percent in gross margin that we attained in the March quarter is above our historical trends," he said. "It's [at] about the target that I've provided, and I don't believe that we can sustain it. I would target gross margin to be 27 to 28 percent in the future."

Boosting the Bottom Line

For the quarter ending in June, Oppenheimer predicted revenues of $3.25 billion and diluted earnings of 28 cents a share.

New product introductions, like the Mac mini and iPod shuffle, helped boost Apple's financials during the March quarter. Oppenheimer said the company went from zero share of the market in flash-memory-based digital music players to 43 percent market share in a single month after introducing the iPod shuffle.

Computer sales during the period continued to be helped by the "halo effect" -- people purchasing Apple computers based on their experience with the iPod digital music player. Apple Executive Vice President for Worldwide Sales and Operations Timothy D. Cook told the analysts that CPU shipments were up 43 percent for the period. "We grew at about four times IDC's most recent published rate of market growth for the quarter," he said.

He added that computer sales in the company's retail stores -- which Apple will be increasing this year from 102 to 125 -- jumped 106 percent, to 144,000, in the March quarter. "In the low- to mid-40 percent range of the people that bought those Macs had never owned a Mac before," he said.

Another factor Oppenheimer and Cook cited as contributing to Apple's stellar performance during the March quarter included that component prices were down, allowing the company to reduce the cost of making products and to reduce prices without taking a revenue hit.

Component Prices

"Prices on most key components trended downward more than we anticipated," Cook said. "That helped us achieve a higher gross margin than we had guided to."

"I would characterize the last quarter as a very favorable buying environment in most component markets," he added. "As we go into Q3, we believe that the current favorable environment will continue. However, I do not expect to see the kinds of declines that we saw in Q2."

Oppenheimer told the analysts, "We are pleased to report the highest March quarter revenue and net income in Apple's history."

However, the six-month numbers for the company were equally gaudy. For the six-month frame ending in March, net income rose to $585 million from US$109 million for the same period a year ago, an advance of 437 percent, and diluted earnings soared 360 percent, to 69 cents from 15 cents a share.

Mum on New Products

Revenues also experienced a healthy bump during the March quarter, increasing comparatively to $3.24 billion from $1.91, or 70 percent. Six-month figures also climbed, to $6.73 billion from $3.92 billion, or 72 percent.

In a statement, Apple CEO Steve Jobs said, "Apple is firing on all cylinders and we have some incredible new products in the pipeline for the coming year, starting with Mac OS X Tiger later this month."

At the earnings conference, when asked what some of those new products might be, Cook quipped, "If I gave you any sense of that, I wouldn't be sitting here on next quarter's call."