Apple Reports Record Earnings, Beats Street, But Stock Down on Guidance

There were high hopes for Apple's earnings release today after the market closed, as buzz over the iPhone and Apple TV has drawn attention away from concerns about a stock options scandal involving CEO Steve Jobs, and there was pressure on Apple to surprise to the upside after mostly disappointing earnings so far from the tech sector. Apple did its part by reporting record net income of $1 billion, or $1.14/share (diluted) on revenue of $7.1b (+24% y-o-y), also a record. The Street was looking for earnings of $0.78/share and Apple had previously forecast EPS of $0.70 to $0.73 on revenue of $6b to $6.2b. In the quarter iPod sales grew 50% (y-o-y) to $3.43b, accounting for almost half of Apple's revenue. Sales of Macs grew 28%, outpacing global PC shipment growth of 5.7% in the quarter, according to IDC. Apple reports gross margin improved by 4% y-o-y to 31.2% and said it "generated over $1.75 billion in cash during the quarter to end with $11.9 billion." However, Q2 revenue guidance of $4.8b to $4.9b and EPS of $0.54 to $0.56 was far short of analysts' consensus estimate of $5.23b and $0.60/share. In normal trading Apple lost 2.21% to close at $94.95. In extended trading Apple shed another 0.8% to $94.17 on volume of 14.4 million, having traded between $93.25 to $99.48. Separately, Bloomberg reports that analysts estimate Steve Jobs to be worth about 25% of Apple's market value, meaning if he were to leave, about $20b of market value could disappear.

• Sources: Apple F1Q07 (Qtr End 12/30/06) Earnings Call Transcript, Apple press release, Bloomberg [I, II], WSJ
• Related commentary: Apple Earnings Preview, iPhone's Second Version Will Pose the Real Threat, Apple is Ratcheting Higher: Is it Stock Split Time?, Apple's iPhone Won't Cannibalize iPod
• Potentially impacted stocks and ETFs: Apple (AAPL). ETFs: NASDAQ 100 Trust Shares (QQQQ), Internet Architecture HOLDRs (IAH), iShares S&P Global Technology (IXN), Technology Select Sector SPDR (XLK)

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