Apple Surges on Net Income Doubling

By Adam Satariano - Jan 26, 2012 6:02 AM GMT+0700

Apple Inc. (AAPL) shares rose to a record after quarterly profit more than doubled as holiday demand for the iPhone and iPad cemented its position as the most valuable technology company.

Apple’s stock gained 6.2 percent to a $446.66 after reporting results yesterday. Apple’s increase, the company’s biggest one-day rise since May 2010, made it the day’s best performer in the Standard & Poor’s 500 Index.

The company sold 37 million iPhones in the period ended Dec. 31, with customers snapping up the new 4S model that went on sale in October, a week after the death of co-founder Steve Jobs. Record revenue vaulted Apple ahead of Hewlett-Packard Co. as the world’s biggest computer maker by sales and quelled concern that the company’s allure may dim as it embarks on a new era with Chief Executive Officer Tim Cook at the helm.

“The momentum that Steve Jobs created, Tim Cook is maintaining,” Gene Munster, an analyst at Piper Jaffray Cos., said in a televised interview on “Bloomberg West.” “We kind of run out of adjectives to describe this quarter.”

Net income of $13.1 billion in the period that ended Dec. 31 ranked among the highest quarterly profits on record, putting Apple in the same league as energy companies such as Exxon Mobil Corp. (XOM) and Russia’s Gazprom OAO (OGZPY), data compiled by Bloomberg show. Per-share profit of $13.87 for the period was more than Apple earned in any full year before 2010, as the success of the new iPhone ramped up pressure on rivals Google Inc. and Samsung Electronics Co.

‘Stunning’ Numbers

The gain gives Apple a market value of about $416 billion, just below Exxon’s $418 billion. The two companies have been trading places atop the Standard & Poor’s 500 Index since August.

“Look at the Apple numbers, they were stunning,” Alcatel- Lucent CEO Ben Verwaayen said in an interview with Maryam Nemazee on Bloomberg Television’s “Countdown” show at the World Economic Forum’s annual meeting in Davos, Switzerland. “It shows that even in a time of difficult circumstances, if you have the right product and the right focus, you can make a difference.”

Sales rose 73 percent to $46.3 billion in the fiscal first quarter, Cupertino, California-based Apple said yesterday in a statement. Analysts surveyed by Bloomberg on average estimated net income of $10.14 a share on sales of $39 billion.

‘Unimaginable’ Numbers

In looking ahead to the second quarter, Apple forecast revenue of about $32.5 billion and profit of $8.50 a share. That compares with average analysts’ predictions for sales of $31.9 billion and profit of $7.96 a share.

Except for the period that ended in September 2011, when customers put off iPhone purchases in anticipation of the 4S, Apple’s profit has exceeded analysts’ projections in every quarter for at least six years, according to data compiled by Bloomberg.

The quarterly results mark the first time Apple’s revenue topped Hewlett-Packard’s, underscoring how the company’s focus on sleek, touch-screen mobile devices has rearranged the technology industry’s pecking order.

Apple’s net income exceeded total revenue at Google (GOOG), Apple’s largest rival in mobile operating systems, for the period.

“Those numbers are just unimaginable,” said Michael Obuchowski, chief investment officer at First Empire Asset Management, which has $4 billion under management, including Apple shares. “It’s still an extremely well-managed company and they are showing that the product pipeline is sufficient even now to generate growth rates that are unrivaled.”

Amazon’s Kindle

Apple wasn’t harmed by Amazon.com Inc.’s introduction of the Kindle Fire, a tablet designed to compete against the iPad at less than half the price. Apple sold 15.4 million iPads, topping the 13.5 million projected by analysts.

“Everybody expected the Kindle Fire to affect their sales,” said Carl Howe, an analyst at the Yankee Group in Boston. “All evidence shows it had none.”

Apple has accumulated $97.6 billion in cash and investments, money it’s “actively” discussing how to use, Chief Financial Officer Peter Oppenheimer said on a conference call yesterday. That could include supply-chain investments, acquisitions or other expenditures, he said.

The recent period was the first full quarter since Cook took over in August, when Jobs stepped down, six weeks before his death. Jobs co-founded the company with Steve Wozniak in 1976.

“This shows that the business model has lasting momentum without Steve Jobs,” said Keith Goddard, CEO of Capital Advisors Inc. in Tulsa, Oklahoma, whose firm manages more than $13 million in Apple shares.

Microsoft, Intel

Apple’s report contrasted with those of companies such as Microsoft Corp. (MSFT) and Intel Corp. (INTC), which are grappling with slower personal-computer sales in part because customers are choosing to buy smartphones and tablets like the iPad instead. While Microsoft and Intel are benefiting from business demand for servers and software, they’re playing catch-up in the consumer arena by rolling out new mobile products, including Microsoft’s Windows 8 operating system, designed to integrate more smoothly with smartphones and tablets.

Rival smartphone makers also have struggled to keep pace with Apple. HTC Corp. (2498) and Motorola Mobility Holdings Corp. (MMI), two of the biggest companies whose devices run Google’s Android operating system, disappointed investors with results for their most recent quarters. Research In Motion Ltd., which has lost 90 percent of its market value since June 2008, replaced its co- CEOs this week.

IPhone Demand

Holiday iPhone demand helped Apple gain market share on manufacturers including Samsung and HTC. In December, about 45 percent of U.S. shoppers who bought a smartphone in the previous three months said they purchased an iPhone, up from 25 percent in a study done two months earlier, according to Nielsen Co. Android phones were selected by 47 percent of buyers, down from 62 percent.

Cook said Apple couldn’t manufacture iPhones fast enough and that the record number announced yesterday could have been bigger.

Competitors also haven’t been able to match the success of the iPad, with Apple controlling 62 percent of the tablet market in the third quarter, according to researcher IDC.

The popularity of the iPad and iPhone has also buoyed sales of Apple’s lineup of Mac computers. The company sold a record 5.2 million Macs in the first quarter, up from 4.9 million in the previous period.

Hewlett-Packard (HPQ) had revenue of $32.1 billion in its most recent quarter, which ended in October. The Palo Alto, California-based computer maker will report fiscal first-quarter results next month.

On the call yesterday, Cook was asked to assess his early months at the helm.

“You can see our results,” Cook said. “The team is doing a fantastic job. We feel very good about where we are.”

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