Apple Shares Gain as Profit Almost Doubles on IPhone Demand

Apple Inc. (AAPL) gained after reporting that second-quarter profit almost doubled, lifted by sales of iPhones, and the company allayed concerns that growth will be crimped by the earthquake in Japan and its aftermath.

Net income in the fiscal second quarter rose to $5.99 billion, or $6.40 a share, from $3.07 billion, or $3.33, a year earlier, Cupertino, California-based Apple said in a statement yesterday. Sales jumped 83 percent to $24.7 billion. Analysts predicted profit of $5.39 a share on sales of $23.4 billion, the average of estimates compiled by Bloomberg.

Verizon Wireless started selling the iPhone in February, helping Apple sell 18.7 million units last quarter, surpassing the 16.3 million average of 13 predictions in a Bloomberg survey. Apple said the earthquake isn’t having a “material” impact on operations and its ability to crank out products.

“To say it’s extraordinary doesn’t do it justice,” Ryan Jacob, chairman of the Jacob Internet Fund, which owns Apple shares, said of Apple’s results.

Apple climbed $8.29, or 2.4 percent, to $350.70 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have risen 8.7 percent this year.

Apple, transitioning to the new iPad 2 introduced on March 11, couldn’t make enough to meet demand. The shortfall led to lower sales than analysts predicted. Apple is ramping up production as it prepares to start selling the tablet computer in 13 additional countries this month, Chief Operating Officer Tim Cook said on a conference call yesterday.

IPad Prediction

“Their products are being embraced wholeheartedly by the entire world,” Michael Walker, a portfolio manager at W.P. Stewart & Co., said in an interview. “Right now the only limit to how many products they can sell is how many they can produce.”

Sales of the tablet in the third quarter may match those of the holiday shopping season, when Apple sold 7.3 million, Walker said. Apple sold 4.69 million iPads last quarter, fewer than the 6.1 million units predicted.

“The iPad has the mother of all backlogs,” said Cook, who has taken over day-to-day leadership of Apple while Chief Executive Officer Steve Jobs is out on medical leave.

Cook said Jobs continues to be involved in decision-making.

“We do see him on a regular basis,” Cook said. “I know he wants to be back full time as soon as he can.”

Cook said Apple’s access to components hasn’t been harmed by the earthquake in Japan and that it doesn’t expect any material effect from the disaster this quarter.

Sales in Japan

Still, sales of products in the country may be $200 million lower as consumers coping with the temblor and tsunami buy fewer gadgets, he said.

For this quarter, Apple forecast profit and sales below analysts’ predictions. Profit this quarter will be $5.03 a share on sales of $23 billion, Apple said. Analysts predicted profit of $5.25 a share on sales of $23.8 billion.

Apple typically reports profit that exceeds analysts’ predictions, and its forecasts are often conservative. Apple has beaten the average estimate for earnings per share for at least 28 straight quarters, according to data compiled by Bloomberg.

Gross margin, the percentage of sales left after deducting production costs, will be about 38 percent this quarter, Apple said on the conference call. Gross margin was 41.4 percent last quarter, compared with 41.7 percent a year earlier, Apple said.

In the second quarter, Apple sold 3.76 million Mac computers and 9.02 million iPod media players. Analysts had predicted the sale of 3.6 million Macs and 9.8 million iPods.

IPhone, IPad Competition

Apple is fending off increased competition to the iPhone, the company’s top-selling product, from rivals such as Samsung Electronics Co. and Motorola Mobility Holdings Inc., which use Google Inc.’s Android operating system.

Android will account for 39.5 percent of global smartphone shipments this year, compared with 15.7 percent for Apple, according to market research firm IDC.

While Apple also faces rivalry in tablet from companies including Samsung, Motorola Mobility and Research In Motion Ltd. (RIMM), it will keep 70 percent of that market for at least two years, said Charlie Wolf, an analyst at Needham & Co.

Last week, Apple filed an intellectual property lawsuit against Samsung, accusing the company of copying the iPhone and iPad. Samsung denied the accusations.

Apple also is Samsung’s largest customer for components, a relationship that shouldn’t be disrupted by the suit against Samsung’s mobile unit, Cook said.

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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