iPod sales boost Apple profits

Apple Computer reported a 36 per cent jump in revenue in its first quarter, beating analyst expectations.

The computer maker posted revenue of $2bn for the period ending 27 December, compared with $1.5bn a year ago. The company's net profit grew to $63m, compared with a net loss of $8m last year.

Excluding an after-tax investment gain of $3m, the company reported a net profit of 16 cents a share. That exceeded analyst expectations of 15 cents a share, according to First Call.

Steve Jobs, Apple's CEO, said in a statement: "It was an outstanding quarter for Apple, with double-digit unit and revenue growth and over 730,000 iPods sold. We're kicking off 2004 with strong momentum, especially for Mac OS X, which is now used by almost 40 per cent of our installed base; iPod; and the iTunes Music Store, which has a 70 per cent share of the legal music download market."

Apple has released a string of announcements this month regarding its iPod digital music player. At Macworld Expo earlier this month, Apple debuted a smaller version of the popular iPod and Hewlett-Packard announced it would put its brand on licensed iPods.

"We think iPod's leading position is defendable for perhaps two years and is important to Apple's 'cool' image," a Merrill Lynch analyst wrote in a recent research report.

iPod and iTunes are expected to eventually account for more than 50 per cent of Apple's revenue, whereas now they represent roughly 9 per cent, the report noted.

"We also had strong sales of our peripherals and software, particularly our Panther (Mac OS X) upgrades, which drove our revenue growth substantially higher than our CPU growth in the quarter," Fred Anderson, CFO, said during an analyst conference call.

And while Apple's Macintosh sales rose overall by 12 per cent in the quarter, it was largely on par with industry growth.

PowerBook shipments reached a record quarterly high of 195,000, up 93 per cent from a year ago, while the iBook shipped 201,000 units - an 8 per cent increase. Apple's Power Mac shipped 206,000 units, posting a 30 per cent increase. But its iMac struggled, shipping 227,000 units, down 24 per cent from a year ago.

Although Apple saw its revenues reach a record quarterly level, it also incurred higher than expected warranty costs.

The additional warranty costs stemmed from repairs to Apple's 15-inch PowerBook G4 and iBook, in which white spots appeared on the liquid crystal screen shortly after customers purchased the computers, Anderson said.

"We've resolved the problem with the supplier, and given the problems, we think it is appropriate to accrue reserves to account for the repairs," he added.

Looking ahead, the Mac maker said it expects to earn 8 cents to 10 cents a share in its second quarter on revenue of $1.8 billion.

Apple's share price was down in after-hours trading at $22.91. During the regular session, Apple closed up 8 cents to end the day at $24.20.

Dawn Kawamoto writes for CNET News.com