iPods have sown the seed of Apple growth

Buoyed by a surge in sales of both iPods and Macs, Apple on Wednesday reported first-quarter earnings that soared past expectations.

The Mac maker earned $295m, or 70 cents per share, on revenue of $3.49bn. That compares with earnings of $63m, or 17 cents per share, on revenue of $2bn in the same quarter a year ago.

Analysts predicted that Apple would earn 49 cents per share, with revenue of $3.1bn, according to the average of analysts polled by Thomson First Call.

Apple CEO Steve Jobs said in a statement: "We are thrilled to report the highest quarterly revenue and net income in Apple's history."

Apple's earnings come a day after the company announced lower-price versions of both of its core products - the iPod and the Mac.

During the quarter, Apple sold about 4.5 million iPods, up from 733,000 sold during last year's holiday quarter. HP-branded iPods accounted for about seven per cent of iPod unit sales, Apple said. The company would not provide details on how sales between the iPod, iPod mini and iPod Photo were split.

Mac sales rose significantly last quarter. The company sold 1,046,000 Macs, up 26 per cent from last year. Analysts have been projecting a rise for the computer industry as a whole of about 10 per cent, meaning that Apple gained a significant share during the quarter. They have been looking for signs that iPod sales are convincing Windows users to buy Macs.

Piper Jaffray analyst Gene Munster said in a telephone interview: "This is the first real evidence of the 'halo effect'," adding that the arrival of the Mac mini should accelerate the trend.

Sales of the iMac were particularly strong, as Apple redesigned the product around a G5 processor. The product, along with the eMac, accounted for $620m in revenue, up 187 per cent from iMac sales in the prior quarter and up 147 per cent from a year ago.

Apple said on its conference call with analysts that the company took in $177m in revenue from its iTunes Music Store, along with iPod accessories and services. The store was "slightly profitable" in the quarter.

The company's forecast for the coming quarter also was higher than prior analyst predictions. Apple projected revenue of about $2.9bn and earnings per share of about 40 cents. Analysts had been looking for revenue of $2.75bn and earnings of 33 cents per share.

Apple shares, which have been on a tear for months, lost ground on Tuesday despite Apple's flurry of new products. Shares made up some of that ground in late trading on Wednesday, ahead of the earnings report. Apple stock rose 90 cents, or 1.4 per cent, to $65.46. Shares surged after the report, changing hands at $73 in after-hours trading, according to Island ECN.

Ina Fried writes for CNET News.com.