Apple Shines with iPhones

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Strong third quarter sales of?iPhones and iPads helped surge Apple Inc.’s profit figures, with quarterly profit rising to $7.31 billion for its fiscal third quarter, up from $3.25 billion a year earlier. Revenue soared 82% to $28.57 billion. Gross margins rose to 41.7% from 39.1% a year ago.

Analysts had predicted profit of $5.87 a share and revenue of $25 billion, according to Bloomberg data.

Sales up

Apple shares jumped, for the first time, 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 yesterday in regular Nasdaq Stock Market trading.

IPhone sales were buoyed by international demand, particularly in China, where total revenue jumped sixfold to $3.8 billion. After overcoming supply shortages for the iPad 2 following its March debut, Apple saw sales of the tablet soar. The device is now its second-biggest revenue source — behind the iPhone — less than two years after first being introduced.

?They have the wind at their backs in a big way, and it?s being reflected in these numbers,? said?Ryan Jacob, an Apple investor at Jacob Asset Management. ?They have a unique ability to increase market share and introduce new products.?

Apple’s results come even as its wide berth in markets that it has dominated?smartphones and tablet computers?has diminished. The company has seen increasing competition from rivals like Samsung Electronics Co.,?Motorola Mobility Holdings?Inc. and?HTC?Corp., prompting several intellectual product disputes. Many rival devices run on Google’s Android.

In an interview, Apple’s finance chief,?Peter Oppenheimer, called the results “staggering,” adding that the company recorded its strongest iPhone and iPad sales in history. Apple’s chief executive,?Steve Jobs, is on medical leave.

Apple issued a conservative financial forecast for its current quarter, which ends in late September, but analysts said they were unconcerned since the company is entering a strong selling season.

Fourth Quarter

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 for that period, which ends in September.

Apple typically gives a lowball forecast, making it less relevant to investors. The company had previously beaten the average earning projection for at least 29 straight quarters, according to data compiled by Bloomberg.

The results reinforced the idea that tablets are taking sales from traditional personal computers. Apple said 86 percent of Fortune 500 companies are testing or deploying the iPad, and that sales of the tablet topped those of the Mac computer among primary and secondary schools.

?We sold every iPad we could make,? Oppenheimer, said on the call.

The iPod, meanwhile, fell short of projections. Apple sold 7.54 million units of the media player last quarter, compared with the 8.5 million predicted by analysts. That product is the oldest of Apple?s main mobile devices and 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.

Apple in China

Though Apple doesn’t break out results by country, Chief Operating Officer?Tim Cook?said revenues from Greater China, including Hong Kong and Taiwan, increased by more than six times to about $3.8 billion.

“I firmly believe that we are just scratching the surface,” said Mr. Cook, adding that “there is an incredible opportunity for Apple there.”

Apple is expanding its retail operations by opening 30 locations in the September period, including in Hong Kong.

The Shanghai Daily reports Apple will begin to sell the iPhone this fall with China Mobile (CHL), by far the largest wireless operator in the People’s Republic. Apple already has a partnership with smaller China Unicom (CHU).

?”A new iPhone with China Mobile’s network will debut and the cooperation will be announced in September,” China Mobile’s Beijing-based marketing official Liu Yang said on his microblog, according to the newspaper.?China could be crucial to the growth of iPhone sales, which in turn are essential to growth in Apple earnings.

It’s impossible to underestimate the value of the Chinese market to smartphone companies as that nation’s legions of wireless users grow rapidly toward the 1 billion mark. If the iPhone can capture a market share in the People’s Republic similar to its U.S. level, Apple’s earnings will skyrocket.

?China was very key to our results? said Cook, during yesterday?s earnings call, announcing that the country accounted for $8.8 billion cumulatively in the first three quarters of this year. Cook said that while the company hadn?t ?learned to play perfectly? in the market he didn?t think anyone would have believed that the world?s most populous country would comprise such a large percentage of total revenue a year ago. Apple stores in China are the?fastest growing?and have the highest numbers on average in terms of both traffic and revenue.

Apple products are considered status symbols in China, like Dolce and Gabbana or Louis Vuitton of computers. And priced as such (at 5,999 yuan) the iPhone 4 is about 1/4 the?average yearly household income.??It?s up to us to convince people to spend a little more for a materially better product,? Cook said. Looks like they?re doing a great job.

Anyhow there are some local comepetitors as well who intend to enter the market with their versions of smartphones. Namely Alibaba and Baidu? (visit

Apple is planning to release new products?such as a new version of its Macintosh operating system, called Lion, on Wednesday, and the new Internet-based iCloud service in the fall?and it is expected to benefit from back-to-school and holiday sales.

Sources: WSJ, Bloomberg, dailyfinance, techcrunch

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