Apple Profit Tops Estimates on Record Sales

Apple Inc. (AAPL), the biggest technology company by market value, reported third-quarter profit that topped estimates, lifted by record sales of iPhones and iPad tablets. The stock jumped to an all-time high in late trading.

Net income in the period more than doubled to $7.31 billion, or $7.79 a share, from $3.25 billion, or $3.51, a year earlier, Apple said today in a statement. Sales climbed 82 percent to $28.6 billion. Analysts had predicted profit of $5.87 a share and revenue of $25 billion, according to Bloomberg data.

The report eased investors’ concerns that sales would suffer from the lack of a new iPhone -- Apple’s best-selling product -- which isn’t expected until September. The Cupertino, California-based company also has been operating without the day-to-day attention of Chief Executive Officer Steve Jobs, who has been on medical leave since January.

“Apple is a juggernaut and they prove it every quarter,” said Mike Binger, an Apple investor at Thrivent Asset Management in Appleton, Wisconsin, which has about $70 billion under management.

Apple shares jumped as much as 7.5 percent to $405 in extended trading after the results were posted. The stock, up 17 percent this year, had closed at a record $376.85 in regular Nasdaq Stock Market trading.

IPhone Orders

Apple’s expansion into China and other fast-growing economies helped make up for slower growth in the U.S. Apple sold 20.3 million iPhones and 9.3 million iPads in the third quarter, which ended June 25. Mac computer sales were 3.95 million, short of a record. The iPad -- a product that’s less than two years old -- is now Apple’s second-biggest source of revenue, after the iPhone.

The company said profit in the fourth quarter would be about $5.50 a share on sales of $25 billion. Analysts on average predict $6.41 a share on sales of $27.7 billion.

Apple typically gives a lowball forecast, making it less relevant to investors, said Thrivent’s Binger.

“The forecast is meaningless,” he said.

Gross profit margin, the percentage of sales left after deducting production costs, was 41.7 percent last quarter, compared with 39.1 percent a year earlier, Apple said.

“We’re thrilled to deliver our best quarter ever, with revenue up 82 percent and profits up 125 percent,” Jobs said in the statement. With the CEO and company co-founder on medical leave, Chief Operating Officer Tim Cook is handling day-to-day leadership.

Photographer: Shi Chunyang/ChinaFotoPress

People line up to buy iPads at the Apple store on September 17, 2010 in Beijing, China. Close

People line up to buy iPads at the Apple store on September 17, 2010 in Beijing, China.

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Photographer: Shi Chunyang/ChinaFotoPress

People line up to buy iPads at the Apple store on September 17, 2010 in Beijing, China.

Next CEO?

Since Jobs went on leave, some members of Apple’s board have discussed CEO succession with executive recruiters, the Wall Street Journal reported earlier today, citing unnamed people familiar with the matter. The talks included at least one head of a high-profile technology company, the Journal said.

The health of Jobs, who has struggled with a rare form of cancer, is the only major concern for Apple, said Erick Maronak, chief investment officer of Victory Capital Management Inc. in New York, which has about $2.5 billion under management.

“In the end it’s really all going to circle back to Jobs -- his health, his role,” Maronak said. Apple is his firm’s largest holding, accounting for about 5 percent, he said.

Jobs's health wasn't discussed on Apple's conference call today, and no analysts inquired about it.

Apple’s Chinese sales reached $3.8 billion, up almost sixfold from a year earlier. The company plans to open 30 stores in the September period, including in Hong Kong, broadening a retail chain that generated $3.5 billion in sales last quarter.

“China was very key to our results,” Cook said on a conference call. “We’re just scratching the surface. There is an incredible opportunity for Apple there.”

Photographer: SeongJoon Cho/Bloomberg

A shopper tries out the Apple Inc. iPad 2 tablet computer at KT Corp.'s Gwanghwamun retail store, in Seoul, South Korea. Close

A shopper tries out the Apple Inc. iPad 2 tablet computer at KT Corp.'s Gwanghwamun... Read More

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Photographer: SeongJoon Cho/Bloomberg

A shopper tries out the Apple Inc. iPad 2 tablet computer at KT Corp.'s Gwanghwamun retail store, in Seoul, South Korea.

Topping Projections

Apple typically reports results that exceed analysts’ estimates. The company had previously beaten the average earning projection for at least 29 straight quarters, according to data compiled by Bloomberg.

“The biggest question with Apple is: Is this story sustainable?” said Shaw Wu, an analyst with Sterne Agee & Leach Inc. in San Francisco. “Obviously, it is.”

In the third quarter, Apple also sold 7.54 million iPod media players, compared with the 8.5 million predicted by analysts. That product is the oldest of Apple’s main mobile devices, and it faces cannibalization from the iPhone and iPad, which also can play music.

It was the first time since 2008 that the third-quarter results didn’t include the release of a new iPhone. The new model slated for September has a faster chip for processing data and an 8-megapixel camera, two people familiar with the matter said last month.

The company also is preparing to introduce a new Mac operating system, called OS X Lion, and the iCloud service, which let users store, synchronize and access content such as music, pictures and documents across different Apple devices.

“We are extremely pleased with the momentum of our business,” Peter Oppenheimer, the company’s chief financial officer, said on the call.

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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