Apple Profit Rises 94% on Growing Global IPhone Demand

Apple Inc. (AAPL) has its biggest gain in more than three years after reporting that demand for the iPhone in China fueled a 94 percent surge in quarterly profit. That eased concerns that had cut shares 12 percent in two weeks.

Net income in the fiscal second quarter climbed to $11.6 billion, or $12.30 a share, as sales rose 59 percent to $39.2 billion, Cupertino, California-based Apple reported yesterday. Analysts had predicted profit of $10.02 a share on revenue of $36.9 billion, data compiled by Bloomberg show.

Buying by Chinese consumers helped Apple sell a higher- than-predicted 35.1 million iPhones last quarter and made the world’s most populous country responsible for 20 percent of sales, up from 12 percent last year. Chief Executive Officer Tim Cook said there will be “a lot more opportunity” in China as he introduces the iPad and expands operations there.

“They are truly just beginning to grow in Asia, and China is possibly their most important market, where they just really started expanding,” said Michael Obuchowski, chief investment officer at First Empire Asset Management in Hauppauge, New York, which manages about $4.5 billion, including Apple shares. “For Apple right now, the most important part of thinking about their business is the international growth.”

Apple rose 8.9 percent to $610 at the close in New York, for the biggest increase since Nov. 24, 2008.

The company sold 11.8 million units of the iPad, which was updated last month to include a high-definition screen and faster processor. Apple has sold 67 million iPads since the device’s 2010 debut. It took the company 24 years to reach that milestone with the Mac computer, Cook told analysts yesterday.

Gross Margin

Analysts surveyed by Bloomberg on average predicted Apple would sell 11.9 million iPads and 31.2 million iPhones.

Apple also benefited from reined-in costs and lower component prices. Gross margin, the percentage of sales remaining after deducting costs of production, was 47.4 percent, compared with 41.4 percent a year earlier.

Before today, the company’s shares had tumbled $75.95 since a record close of $636.23 on April 9 amid reports that indicated a possible shortage in key components for its mobile devices and showed a quarter-over-quarter decline in iPhone sales at wireless carriers. Some traders took cues from technical indicators that use historical trends to predict stock moves.

“This report should erase any doubt in investors’ minds that this company can’t continue to deliver,” said Jack Ablin, chief investment officer of Harris Private Bank in Chicago, which oversees about $60 billion, including Apple shares.

Signs of Recovery

The results added to evidence of a rebound in some pockets of the economy that buoyed results for other technology bellwethers. Microsoft Corp., the top software maker, last week reported better-than-expected corporate purchases of computers, while Texas Instruments Inc., the biggest maker of analog chips, this week indicated robust demand for a range of electronics. International Business Machines Corp, the biggest computer- services provider, also reported higher profit.

For Apple, China has made up a growing slice of results since the introduction of the iPhone there in 2009. The most populous country accounted for $7.9 billion of revenue, Cook said on the call with analysts. That’s three times the level for a year earlier, Cook said.

“China has been a very fast-growing region for them,” said Abhey Lamba, an analyst at Mizuho Securities USA Inc. in New York. “There’s more disposable income, strong demand for high-end products and their penetration has been very low in that market.”

To ‘Understand China’

Cook visited China last month, meeting with government officials and touring plants where the company’s products are built. The visit came just as a labor group said workers at those facilities, which are operated by Foxconn Technology Group, were violating local laws for excessive work hours.

Cook, who has vowed to improve working conditions at the facilities, said Apple and other companies are benefiting from China’s growing middle class.

“There is tremendous opportunity for companies that understand China,” Cook said on the call. “We’re doing everything we can to understand it and serve the market as good as we can.”

The company is in talks to sell the iPhone through China Mobile Ltd., the country’s largest carrier. The opportunity to market the iPhone to China Mobile’s more than 600 million subscribers would give Apple added scope for growth in Asia.

Apple sold 4 million Mac computers and 7.7 million iPods, compared with 4.5 million Macs and 7 million iPods projected by analysts.

Quarterly Forecasts

Apple added to its cash hoard during the quarter. The company said it now has $110.2 billion in cash and investments on its balance sheet. Part of that sum will be returned to investors starting later this year, when Apple plans to start paying a dividend and buying back shares.

Looking ahead to results for the current quarter, Apple forecast revenue of about $34 billion and profit of $8.68 a share. That compares with average analysts’ predictions for sales of $37.5 billion and profit of $9.96 a share.

The results will be lower because Apple doesn’t expect to sell as many iPhones in the quarter now under way, said Peter Oppenheimer, Apple’s chief financial officer. Customers often hold off on purchases of the iPhone in the months before Apple releases an upgrade. Analysts including Chris Whitmore of Deutsche Bank AG have predicted that Apple will introduce a new iteration of the handset later this year.

New Products Coming

Cook, who took over for late co-founder Steve Jobs last year, hinted new products will be released.

“You’re going to see a lot more of the kind of innovation that only Apple can deliver,” Cook said in a statement.

Cook also discussed one product Apple won’t be making. He said Apple doesn’t intend to release a hybrid tablet-laptop computer. By contrast, Microsoft is introducing a new operating system that will run on smartphones, tablets and personal computers. Cook said users prefer to have different experiences on mobile devices and PCs.

“You can converge a toaster and a refrigerator, but those things are probably not going to be pleasing to the user,” Cook said.

In China and elsewhere around the world, Apple is in the midst of a growing rivalry with Samsung Electronics Co. (005930), Asia’s largest consumer-electronics maker. While Samsung is a supplier of components for Apple devices, it also is among the biggest makers of products that run Google Inc.’s Android software. Earlier this month, Samsung reported profit rose to a quarterly record of 5.8 trillion won ($5.1 billion).

Dearth of Adjectives

Samsung is one of several companies entangled in patent litigation with Apple in the U.S., Europe and Asia.

Cook said that while he’d prefer to settle the lawsuits than battle in court, he didn’t give any details on when such a deal may be reached.

“We need people to invent their own stuff,” Cook said.

Apple’s results contrast with those of Research In Motion Ltd. (RIMM) and Nokia Oyj, which have cut jobs and reorganized operations after falling behind in smartphone sales.

Apple’s growth also is bringing more government scrutiny. The U.S. Justice Department is suing Apple for allegedly colluding with book publishers to raise the price of e-books. Apple has denied wrongdoing.

Nonetheless, the second-quarter results point to Apple’s continued leadership in the technology industry, said Gene Munster, an analyst at Piper Jaffray Cos.

“We’ve run out of adjectives to describe these quarters,” Munster said yesterday.

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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Apple Plans Further China Investment

Qilai Shen/In Pictures/Corbis

Apple Inc. employees pump their fists in the air as they open the company's new store in Shanghai, China, on Friday, Sept. 23, 2011. Apple Inc. is currently has 5 stores in mainland China as it struggles to open enough stores to stave off competition of its popular iPhones and iPads.

Apple Inc. employees pump their fists in the air as they open the company's new store in Shanghai, China, on Friday, Sept. 23, 2011. Apple Inc. is currently has 5 stores in mainland China as it struggles to open enough stores to stave off competition of its popular iPhones and iPads. Photographer: Qilai Shen/In Pictures/Corbis

7:01

April 25 (Bloomberg) -- Brian Marshall, analyst at ISI Group, and Brian White, an analyst at Topeka Capital Markets, talk about Apple Inc.'s earnings and the outlook for the company. They speaking with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

3:23

April 25 (Bloomberg) -- Bloomberg's Erik Schatzker and Scarlet Fu report that Apple Inc. rose after reporting that robust demand for the iPhone in China fueled a 94 percent surge in quarterly profit, allaying the growth concerns that had sliced the company’s shares by 12 percent since April 9. They speak on Bloomberg Television's "Inside Track." (Source: Bloomberg)

4:09

April 25 (Bloomberg) -- Howard Ward, a portfolio manager at Gamco Investors Inc., talks about Apple Inc.'s earnings report and the outlook for the company's stock. Ward speaks with Erik Schatzker and Scarlet Fu on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

1:49

April 24 (Bloomberg) -- On today's "BWest Byte" Bloomberg's Emily Chang and Jon Erlichman discuss Apple's cash pile. (Source: Bloomberg)

4:15

April 25 (Bloomberg) -- Shaw Wu, an analyst at Sterne Agee & Leach Inc., talks about Apple Inc.'s financial results and business outlook. Apple profit almost doubled last quarter, reflecting robust demand for the iPhone in China and purchases globally of a new version of the iPad, allaying the growth concerns that sliced shares 12 percent in two weeks. Wu speaks from San Francisco with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

5:37

April 25 (Bloomberg) -- Kirk Yang, an analyst with Barclays Plc, talks about Apple Inc.'s financial results and the company's Asian suppliers. Apple profit almost doubled last quarter, reflecting robust demand for the iPhone in China and purchases of a new version of the iPad, allaying the growth concerns that sliced shares 12 percent in two weeks. Yang speaks in Hong Kong with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)