Jan. 17 (Bloomberg) -- Apple Inc. said first-quarter profit jumped 78 percent after holiday shoppers snapped up iPod digital music players and Macintosh computers.

Net income rose to $1 billion, or $1.14 a share, from $565 million, or 65 cents, a year earlier, Cupertino, California-based Apple said today in a statement. Sales rose 24 percent to $7.12 billion. Analysts anticipated profit of 78 cents, according to the average of 14 estimates compiled by Bloomberg.

Apple sold a record 21.1 million iPods after Chief Executive Officer Steve Jobs stoked holiday demand by releasing smaller, less-expensive and higher-capacity models. Updated Macs with faster chips from Intel Corp. helped drive shipments to 1.61 million machines. Sales gained in the U.S. and abroad.

``The results today confirm that Apple's product portfolio is a superior offering to the market place,'' said Glen Kacher, a fund manager at Integral Capital Partners in Menlo Park, California, which owns Apple shares. This year ``should be a victory lap for Apple.''

Profit and sales this quarter will fall short of analysts' estimates. Apple forecast earnings of 54 cents to 56 cents a share, compared with the 60-cent average analyst estimate. The company expects sales of $4.8 billion to $4.9 billion, below analysts' average estimate of $5.23 billion.

Apple tends ``to be very cautious'' in its forecasts, said Michael Church, who helps handle $2.2 billion at Church Capital in Yardley, Pennsylvania. ``Expectations were pretty lofty.''

Options Overhang

Shares of Apple fell 1 percent in late trading to $94.04 after dropping $2.15 to $94.95 at 4 p.m. New York time in Nasdaq Stock Market trading. They have advanced 12 percent this month following an 18 percent increase last year.

The results may divert attention away from a stock options scandal at Apple.

The company in December said an internal investigation, led by Apple director and former U.S. Vice President Al Gore, cleared Jobs of any misconduct. While he knew about and recommended some backdating -- in which recipients receive more favorable pricing on stock grants -- Apple said Jobs, 51, didn't benefit from the practice.

That may not clear Jobs in the eyes of U.S. investigators at the Securities and Exchange Commission and Department of Justice. Federal prosecutors in San Francisco are reviewing Apple's backdating of stock options.

``He's more important to the company than almost any other CEO is to any other company,'' said Roger Kay, an analyst at Endpoint Technologies Associates in Wayland, Massachusetts. ``He embodies the company. Any vulnerability on his part is definitely negative.''

IPhone

Jobs, who co-founded Apple in 1976, didn't mention the company's stock-options probe last week when he unveiled the iPhone, a gadget due in June that combines the iPod and a cell phone with Internet browsing.

Apple plans to sell 10 million iPhones next year to capture a 1 percent slice of the cell-phone market, Jobs said at the San Francisco Macworld Expo conference. He also introduced Apple TV, a set-top box enabling users to send movies, TV shows and other media files from their computers to their televisions.

``Adding the iPhone and the Apple TV product to the mix can only mean that Apple will lead the connected device market,'' said Integral Capital's Kacher.

The company has sold more than 88.7 million iPods since Jobs introduced the player in October 2001.

Wait and See

``We could not have been happier with the quarter,'' Chief Financial Officer Peter Oppenheimer said in an interview. Apple will have ``to see'' whether customers hold off buying iPods as they wait for the iPhone, he said.

While the iPhone may damp sales of standalone iPod players, investor enthusiasm that Apple's earnings will continue to thrive pushed the shares to a record $97.10 yesterday.

This marks the ninth-straight quarter that Mac shipments have topped 1 million machines, with sales of MacBook notebooks surpassing orders for desktop models such as the iMac.

The average selling price for Macs rose to $1,501 in the first quarter, compared with $1,375 a year earlier. For iPods, average selling prices dropped to about $163 from $205 with the addition of the $79 Shuffle in October.

The Mac is competitively priced and Apple doesn't expect to cut pricing to gain more orders, Chief Operating Officer Timothy Cook said on a conference call with analysts. ``We have no reason to change.''

`Like Band-Aids'

Sales through Apple's 170 retail stores made up 16 percent of total revenue, down from 19 percent a year earlier, as the company adds retail partners to help sell Macs and iPods. The Mac is sold through 7,500 stores worldwide, while the iPod is available at 40,000 stores, Apple said.

The stores ``are bringing many new customers to Apple,'' Oppenheimer said on the call. ``Come June, they'll sell a lot of iPhones.''

More than a third of annual iPod orders come in December, according to a Jan. 3 report by analyst Richard Farmer at Merrill Lynch & Co. in New York. He cited research on sales of so-called MP3 players from the NPD Group Inc.

Some buyers including Ramon Smith, 33, were drawn to the Shuffle, Apple's lowest-priced iPod. Having already purchased an iPod for his wife and daughter, Smith, an office manager at Thomas Weisel Partners Group Inc., bought the Shuffle for himself while shopping at Apple's San Francisco store three days before Christmas.

``They're like Band-Aids,'' said Laura Bzdek, 38, after picking up an 80-gigabyte video iPod for her boyfriend. ``They're the brand name of MP3 players.''

(Apple hosted a conference call today. For a replay, see http://www.apple.com/quicktime/qtv/earningsq107/.)

To contact the reporter on this story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net.

Last Updated: January 17, 2007 19:02 EST