Apple May Say Profit Jumped on IPad, IPhone 4 Demand

Apple Inc. will report that profit rose 58 percent, analysts predict, reflecting demand for the iPad tablet and early sales of the iPhone 4.

In a report later today, Apple may say net income in the fiscal third quarter surged to $2.88 billion, or $3.11 a share, according to the average estimate of analysts surveyed by Bloomberg. A year earlier, Apple’s profit was $1.83 billion, or $2.01 a share, when adjusted for an accounting change. Last quarter’s revenue likely surged 52 percent.

The results will give the first indication of the impact of the new tablet, released April 3. Apple sold 3 million iPads in 80 days, a sign Chief Executive Officer Steve Jobs is building a market for tablet machines that deliver video, e-books and Web access. The period includes three days of sales of the iPhone 4, which broke early records even as it drew fire for a design flaw that results in diminished call reception.

“The issue with Apple is high expectations,” said Shaw Wu, an analyst at Kaufman Bros. LP in San Francisco who recommends buying the shares and doesn’t own any. “The company is held to a very high standard, both by users and the financial community.”

Apple, based in Cupertino, California, rose $1.93, or less than one percent, to $247.51 at 1:01 p.m. New York time in Nasdaq Stock Market trading. The shares, up 17 percent this year before today, had slid 8.7 percent since the iPhone 4 landed on store shelves.

Antenna Remedies

Revenue likely rose to $14.7 billion from $9.73 billion, analysts predict. The growth came partly as Apple sold 1.7 million iPhone 4s before the quarter ended, a record for the gadget, Apple’s bestselling product in the second quarter.

After the phone’s debut, users complained of lost reception when they held it in a certain way. Consumer Reports said it couldn’t recommend the device because of the flaw, the first time the watchdog hasn’t given its imprimatur to an iPhone.

At a press conference last week, Apple said less than 1 percent of users have reported the glitch to its customer service centers. The company, which has now sold more than 3 million iPhone 4s, is giving away cases to remedy the flaw.

Apple’s long-term solution for fixing the antenna may be placing a nonconductive coating over the antenna, said Vijay Rakesh, an analyst at Sterne Agee & Leach Inc. in Chicago who recommends buying the shares and doesn’t own any.

While initial sales were strong, negative publicity may eventually erode demand, said Wu of Kaufman Bros. The iPhone is Apple’s top-selling product, accounting for 40 percent of its revenue in the fiscal second-quarter.

7.5 Million iPhones

“The risk is perception becomes reality,” Wu said. “If people think there’s something wrong, they won’t buy it.”

Toni Sacconaghi, an analyst with Sanford C. Berstein & Co. in New York, estimates that in the third quarter, Apple sold 3.2 million iPads, 7.5 million iPhones, 3.4 million Macs and 10.1 million iPods. Sacconaghi rates the stock “outperform.”

Steve Dowling, an Apple spokesman, declined to comment ahead of the company’s earnings report.

Investors also will scour results for signs that the iPad is weighing on gross margin, the percentage of sales remaining after deducting production costs, said Brian Marshall, an analyst at Gleacher & Co. in San Francisco.

Apple, which posted second-quarter gross margin of 41.7 percent, said in April that the figure would be squeezed amid “very aggressive” pricing for the device. The company forecast third-quarter gross margin of about 36 percent.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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