U.S. Stocks Rise Amid Better-Than-Forecast Earnings

By Rita Nazareth - Apr 25, 2012 4:01 AM GMT+0700

U.S. stocks advanced, following yesterday’s decline in the Standard & Poor’s 500 Index, amid better-than-estimated earnings at companies from AT&T Inc. to 3M (MMM) Co. and as data indicated the housing market is stabilizing.

AT&T, the largest U.S. telephone company, and 3M, the maker of Post-it Notes, rose at least 1.5 percent. International Business Machines Corp. added 0.7 percent after the company boosted its buyback plan by $7 billion and raised its dividend. Juniper Networks Inc. increased 7.2 percent as revenue beat analysts’ projections. Apple Inc. (AAPL) jumped 7.5 percent at 5 p.m. New York time as profit almost doubled last quarter.

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Specialists on the floor of the New York Stock Exchange on April 23, 2012. Photographer: Richard Drew/AP Photo

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April 24 (Bloomberg) -- Bloomberg's Scarlet Fu reports futures are higher and European stocks are rebounding after yesterday's selloff. She speaks on Bloomberg Television's "Inside Track." (Source: Bloomberg)

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April 24 (Bloomberg) -- U.S. stock futures advanced, indicating the Standard & Poor’s 500 Index will gain for a second time in three days, as investors awaited reports on home sales and consumer confidence in the world’s largest economy. (Source: Bloomberg)

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April 24 (Bloomberg) -- Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds, talks about his forecast for the Standard & Poor's 500 Index and market drivers. Jacobsen speaks with Betty Liu, Dominic Chu and Josh Lipton on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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April 24 (Bloomberg) -- Bloomberg's Alix Steel reports that homebuilding stocks are rising on today's home price and new home sales data with signs that the housing market is beginning to turn in certain areas of the country. She speaks on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

The S&P 500 rose 0.4 percent to 1,371.97 at 4 p.m. New York time. The Dow Jones Industrial Average added 74.39 points, or 0.6 percent, to 13,001.56. The Nasdaq Composite Index lost 0.3 percent to 2,961.60. About 6.2 billion shares changed hands on U.S. exchanges, or 7.8 percent below the three-month average.

“Stocks have room to move higher,” said David Kelly, who helps oversee about $394 billion as chief market strategist at JPMorgan Funds in New York. “Earnings are healthy. The bar has been lowered so far that you can just walk over it. Housing is on the mend. A sign of a market top is when people are exuberant. There’s no exuberance as witnessed yesterday.”

Equities rebounded from yesterday’s slump, extending this year’s rally in the S&P 500 to 9.1 percent. Earnings per share beat forecasts at 82 percent of S&P 500 companies that reported results since April 10, according to data compiled by Bloomberg. Per-share profits grew 3.3 percent in the first-quarter, Bloomberg data show. That’s up from the 0.8 percent growth projection before the earnings season started.

Economic Data

Economic optimism helped fuel gains today as new home sales data indicated that cheaper borrowing costs are helping stabilize the real estate market. Federal Open Market Committee members began a two-day meeting today and tomorrow will probably repeat their plan to keep the benchmark interest rate low at least through late 2014, economists say.

A gauge of homebuilders in S&P indexes jumped 2.4 percent. D.R. Horton Inc., the largest U.S. homebuilder by volume, rose 3.2 percent to $15.54. KB Home added 4.5 percent to $7.91.

Phone shares had the biggest gain among 10 S&P 500 groups, rallying 2.8 percent. AT&T (T) added 3.6 percent to $31.72. Earnings beat estimates on lower smartphone upgrade costs and an increase in wireless data sales related to Apple’s iPad.

3M increased 1.6 percent to $88.49. The U.S. market drove sales at the industrial and transportation unit, the largest division at the St. Paul, Minnesota-based company.

IBM’s Dividend

IBM (IBM) gained 0.7 percent to $200. The quarterly payout will rise 10 cents to 85 cents a share. IBM had $5.7 billion remaining from a previous buyback plan, bringing the total available for repurchases to $12.7 billion.

Technology companies are approaching consumer staples as the largest dividend payers, according data compiled by Howard Silverblatt, S&P’s New York-based senior index analyst. The technology group contributes about 14 percent of the S&P 500’s dividends, up from 5.1 percent in 2004. Consumer staples companies account for almost 15 percent.

Apple gained 7.5 percent to $602.25 after the close of regular trading. Net income in the fiscal second quarter climbed to $11.6 billion, or $12.30 a share, as revenue increased 59 percent to $39.2 billion. Analysts had predicted profit of $10.02 a share on revenue of $36.9 billion.

Chief Executive Officer Tim Cook is increasingly relying on regions outside the U.S. for sales growth. That helped make up for sales declines from the previous quarter at the top U.S. mobile-phone carriers, Verizon Wireless and AT&T. It also quelled speculation that Apple’s growth pace may slacken.

‘Fast-Growing Region’

“China has been a very fast-growing region for them,” said Abhey Lamba, an analyst at Mizuho Securities USA Inc. in New York. “There’s more disposable income, strong demand for high-end products and their penetration has been very low in that market. They have been highlighting that region as one of their focus areas.”

The company’s shares slumped 2 percent to $560.28 today, dropping for a fifth straight day. Motorola Mobility Holdings Inc. won a partial U.S. International Trade Commission judge’s ruling in its bid to block imports of Apple’s devices including the iPhone and iPad tablet computer.

Juniper (JNPR) Networks climbed 7.2 percent to $21.63. Results suggest that demand from cable companies and other Internet service providers for Juniper’s switches and routers may be improving, said Brian Marshall, an analyst at ISI Group.

Wal-Mart Slumps

Wal-Mart Stores Inc. (WMT) slumped 3 percent to $57.77. The shares dropped 7.5 percent in two days, the most since January 2009. The retailer is investigating allegations that executives in Mexico paid more than $24 million in bribes to speed expansion there. The company also is the subject of a U.S. Justice Department criminal investigation, a person familiar with the probe said yesterday.

Big Lots Inc. (BIG) plunged 24 percent, the biggest decline in the S&P 500, to $34.71. The discontinued-merchandise retailer with more than 1,400 U.S. stores reduced its fiscal first- quarter sales forecast amid lower demand for electronics.

Netflix Inc. (NFLX) tumbled 14 percent to $87.68. The world’s largest video-subscription service projected a slowdown in growth of U.S. streaming customers.

Coach Inc. (COH) lost 4.3 percent to $71.87. The largest U.S. luxury handbag maker reported fiscal third-quarter sales that beat analysts’ estimates by the smallest margin in 11 quarters.

Slower Growth

Companies’ failure to boost forecasts for future profits and sales will weigh on the S&P 500 as investors project slower growth, according to Barclays Plc’s Barry Knapp.

Knapp predicts the S&P 500 will end the year at 1,330, 4 percent below the average forecast of 11 strategists surveyed by Bloomberg as of April 16. He forecasts combined profit by S&P 500 companies will be $103 a share this year. Analysts that cover companies in the index estimate earnings of $104.86 in 2012 and $118.06 in 2013, according to data compiled by Bloomberg.

“Guidance is not moving higher and as a result, even where companies are beating estimates, the stocks still aren’t going up,” Knapp, the New York-based head of equity strategy at Barclays, said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “If the guidance doesn’t move up, if the revenue’s missed, really what you’re discounting in terms of the growth outlook is not all that great.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Merkel Pushes Back Against Hollande Call to End Austerity Drive

By Tony Czuczka and Patrick Donahue - Apr 25, 2012 5:01 AM GMT+0700

German Chancellor Angela Merkel said balanced budgets are the best answer to the debt crisis, rebuffing French Socialist presidential candidate Francois Hollande’s campaign pledge to reverse Europe’s austerity drive.

As Europe’s two largest economies head toward potential conflict over quashing the crisis, Merkel and her ruling party stood firm on German-led remedies, including the debt-cutting fiscal pact signed last month by all 17 euro-area leaders.

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German Chancellor Angela Merkel during a meeting on the government's demographic strategy at the Chancellery in Berlin on April 24, 2012. Photographer: Odd Andersen/AFP/Getty Images

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April 24 (Bloomberg) -- Bill Blain, co-head of the Special Situations Group at Newedge Group Ltd., discusses the European Central Bank's role in boosting the euro-area economy and political turmoil in the Netherlands. He talks with Guy Johnson on Bloomberg Television's "The Pulse." (Source: Bloomberg)

“If Mr. Hollande were to say that he wants to increase government spending and save less, he’ll lose the confidence of the financial markets,” Peter Altmaier, the parliamentary whip of Merkel’s Christian Democrats, said in an interview in Berlin yesterday. “We will stick to our fundamental principles because there’s really no alternative.”

Germany, the largest country contributor to euro-area bailouts, is facing growing resistance from traditional allies to its anti-crisis prescriptions as a $1 trillion firewall and unlimited European Central Bank loans to the region’s lenders fail to stop the turmoil from threatening Spain and Italy.

Hollande, who leads President Nicolas Sarkozy in polls for France’s runoff election on May 6, said two days ago that budget austerity across Europe is “bringing desperation to people” and that he’ll refocus the economy on growth if he wins.

Dutch Prime Minister Mark Rutte urged politicians yesterday to tackle the country’s economic woes after his coalition collapsed over proposed budget cuts, raising investor concern about his country’s ability to retain its AAA credit rating. A proposal on austerity measures will be sent to parliament today.

European ‘Credibility’

Merkel, who faces two German state elections in May and a national election in the fall of 2013, joined with Sarkozy to craft the euro area’s crisis response over the past year and backed him for re-election. She insisted on the need for austerity yesterday, saying Europe’s “credibility” depends on reducing deficits and debt.

“We’re not saying that saving solves all problems,” she told a conference in Berlin. Still, “you can’t spend more than you take in. You can’t live your whole life this way. Everybody knows this.”

Dutch bonds rose for the first time in four days yesterday, a day after the extra yield that investors demand to hold 10- year Dutch debt instead of similar-maturity German bunds soared to the most since March 2009. The euro rose 0.4 percent to $1.3204 at 7:09 p.m. Berlin time and the Stoxx Europe 600 index gained 1 percent to 254.37.

May Elections

Merkel may cede ground to austerity critics if the Social Democrats, the main German opposition party, increase their support in May’s state elections as polls suggest, said Thomas Costerg, an economist at Standard Chartered Bank in London.

If Hollande becomes French president and Merkel switches allies to govern with the Social Democrats after the German election in 2013, that “may further help to make views converge,” he said in an e-mail. “The last bastion of austerity could remain the Bundesbank.”

Hollande, at a campaign stop in Brittany, renewed his criticism of German-led austerity and said the ECB needs to do more to support Europe’s growth. On France’s TF1 television station last night, he said he wants a different kind of Europe.

“Merkel has led Europe with Sarkozy and we can measure the results,” he said. “If I am elected president, there will be a change in the focus of Europe’s construction. Enough free market, limitless competition, enough austerity. I want a serious budget. I want to restore public accounts, which have worsened in the past five years. Austerity for life? No. A rigorous budget? Yes. I will renegotiate the treaty, Merkel knows it.”

‘Another Europe’

Hollande has said he’ll seek to add growth and investment measures to the fiscal treaty signed by Merkel, Sarkozy and 23 other EU leaders on March 2.

If he’s elected, his first visit will be to meet Merkel, so he can bring her “French people’s vote for another Europe,” Hollande said last night.

Merkel “is pretty resistant to pressure,” Altmaier said. France’s presidential vote and the Dutch government’s collapse don’t change the fact that “there’s no money in Europe, only deficits everywhere you look. Knowing the chancellor, she will await the outcome in France and then we’ll try to come to an understanding with the new government, whoever leads it.”

Hollande said the absence of economic growth prospects explained the record score for National Front leader Marine Le Pen in the April 22 first round of the French vote.

Anti-Austerity Front

Le Pen, who has called for France to leave the euro area and criticizes the close ties between Sarkozy and Merkel, won 17.9 percent, or 6.4 million votes, the highest tally for the National Front created by her father Jean-Marie Le Pen in 1972. Hollande got 28.6 percent and Sarkozy 27.2 percent.

Europe’s front against austerity has expanded in recent weeks after Spain struggled to meet EU-imposed deficit targets, election campaigns in Greece faced anti-austerity rumblings and the revolt against extra spending cuts in the Netherlands, a traditional German ally, pushed Rutte’s coalition toward an early breakup. The Netherlands is one of four remaining AAA states in the euro area.

For all the turbulence, “nothing has happened in recent weeks that would raise questions” about the need for area countries to overhaul their economies and cut debt, German Deputy Finance Minister Hartmut Koschyk said in an interview.

No financial backstop is big enough to arrest the debt crisis and hold down borrowing costs on its own, he said. “It doesn’t matter,” he said yesterday. “It is no substitute for structural reforms” because “the readiness of markets to tolerate out-of-control public debt has vanished.”

To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net; Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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IPad Onslaught Sends Taiwanese Laptop Makers to the Cloud

By Tim Culpan - Apr 24, 2012 1:56 PM GMT+0700

The world’s two biggest laptop assemblers are seeking shelter in the cloud as Apple Inc. (AAPL)’s iPad threatens the future of personal computers.

Quanta Computer Inc. (2382) and Compal Electronics Inc. (2324), the Taiwanese companies that together make half of all portable computers, are turning to servers and the tablets that access them. Revenue from building notebooks for clients such as Hewlett-Packard Co. (HPQ) and Dell Inc. (DELL) at Taoyuan, Taiwan-based Quanta fell last year for the first time since the company listed in 1999 as the U.S. PC market declined for the first time in a decade.

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An employee fills an order for the new iPad at an Apple store in San Francisco. Photographer: David Paul Morris/Bloomberg

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April 23 (Bloomberg) -- Kevin Dede, technology analyst at Auriga USA, talks about Apple Inc.'s shares and the outlook for tomorrow's fiscal second-quarter earnings report. He speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

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Sales of the iPad, cheaper and lighter than most laptops, have forced a slowdown in the $233 billion PC market. Photographer: David Paul Morris/Bloomberg

Sales of the iPad, cheaper and lighter than most laptops, have forced a slowdown in the $233 billion PC market, pushing the assemblers to chase orders from Google Inc. (GOOG) and Amazon.com Inc. (AMZN) for servers and tablets. The Taiwanese companies are taking a cue from their customers. Dell is cutting its reliance on PCs and HP considered spinning off the business, seven years after International Business Machines Corp. (IBM) exited the market.

“The golden era for notebooks is over,” said Arthur Liao, an analyst at Fubon Financial Holding Co. (2881) in Taipei, who rates Quanta an add and has no rating on Compal. “Quanta and Compal need to diversify into cloud computing devices like tablets and servers if they want to survive and grow.”

The success of iPads and other tablets has accelerated the growth of the cloud. Unlike PCs, tablets don’t store reams of data, but rather rely on frequent access to remote servers to run their applications, stream videos and music, and tap into all manner of other data.

Cloud Computing

Sales at Quanta, the world’s biggest laptop assembler, from cloud-computing products will climb 80 percent this year as Google and Amazon boost orders, said Kirk Yang, an analyst with Barclays Plc. (BARC) Compal last year more than doubled the proportion of its revenue from devices other than notebooks, said Jimmy Chen, an analyst with Masterlink Securities Corp. (2856) in Taipei.

Sales of cloud-computing products, including servers, tablets such as Amazon’s Kindle Fire and Internet routers, at Quanta will account for 13.4 percent of revenue this year from 8.7 percent last year, Yang said. Analysts estimate revenue growth will be 9 percent this year after dropping 1.3 percent last year, according to data compiled by Bloomberg. Quanta Chief Financial Officer and spokesman Elton Yang declined an interview request.

Facebook, Twitter

“Quanta and Compal recognized a while ago that notebook growth is slowing and they needed to look for new products,” said Chen, who rates both companies hold and estimates that combined they made about half the world’s laptops in the past decade. “Moving into cloud devices is new and risky territory for them, but it’s a move they need to make.”

Quanta’s shares have climbed 20 percent this year in Taipei and Compal’s have added 12 percent, compared with a 6 percent advance in the benchmark Taiex (TWSE) index.

With social-networking sites such as Facebook Inc. (FB), Google and Twitter Inc. gaining in popularity and more people using the Internet to buy and store music and data, demand for servers continues to climb.

That same can’t be said for PCs. Global computer shipments climbed 0.5 percent last year to 353 million units, trailing the 7 percent rise in sales volume for servers, according to researcher Gartner Inc. Significantly, server revenue gained even higher, at 7.9 percent, Gartner said, indicating average prices increased during the year.

Reign of PCs

Computer prices have declined annually since 2008, according to data compiled by Bloomberg. The average price on Dec. 31 was $660.07, compared with $786.90 on Dec. 31, 2008.

Tablet shipments will almost double to 119 million units this year, while computer shipments will climb 4.4 percent, according to Gartner. Sales of smartphones, which also can access cloud-based services, will climb 34 percent this year to 660 million units, according to IDC Corp.

In the past seven months, Google has announced more than $700 million of spending on Asian data centers, which are large warehouses that host its servers. That’s because increasingly more users in the region are accessing sites such as YouTube from handheld devices, Asia-Pacific President Daniel Alegre said in an April 3 interview.

Amazon, the largest Internet retailer, almost doubled capital spending last year to $1.9 billion, according to Bloomberg data. The Seattle-based company boosted technology and infrastructure expenses to support its Web services, Chief Financial Officer Tom Szkutak said Jan. 31.

Apple Products

“The reign of the personal computer as the sole corporate access device is coming to a close,” Stamford, Connecticut- based Gartner said March 12. “By 2014, the personal cloud will replace the personal computer at the center of users’ digital lives.”

Compal, based in Taipei and lagging only Quanta in laptop assembly, is the manufacturer of Acer Inc. (2353)’s Iconia tablet. Compal boosted revenue from non-notebook devices such as tablets, all-in-one PCs, televisions and smartphones, to 16 percent of sales last year from 7 percent the year before, Masterlink’s Chen estimates.

That figure may climb to about 20 percent this year, though the company’s decision not to manufacture servers makes Compal less diversified than Quanta and more at risk from the notebook- industry slowdown, Chen said.

Compal Chief Financial Officer Garry Lu, who also is the company’s spokesman, didn’t answer calls seeking comment.

Besides servers for Amazon, Quanta is manufacturing the online bookseller’s Kindle Fire. The device was the second-best selling tablet in the fourth quarter behind the iPad, according to DisplaySearch Inc.

Quanta also is the biggest assembler of Apple computers and laptops, making it an indirect beneficiary of the iPad, which has helped Apple lure consumers to its Mac devices from Microsoft Corp.’s Windows-based models, Liao said. Apple accounted for 24 percent of Quanta’s revenue in 2011, and that should climb to 34 percent this year, he estimated.

“Cloud computing is their future.” Barclay’s Yang said. “The challenge is that it’ll take a few years to get there.”

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.

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Facebook First-Quarter Profit Drops; Costs Almost Double

By Brian Womack and Lee Spears - Apr 25, 2012 4:40 AM GMT+0700

Facebook Inc. (FB), the social network planning an initial public offering, said first-quarter profit fell 12 percent as sales growth slowed and marketing costs more than doubled.

Net income dropped to $205 million in the three months through March, Menlo Park, California-based Facebook said yesterday in a regulatory filing. Sales climbed 45 percent to $1.06 billion, a slowdown from 55 percent in the December period.

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Facebook in Hong Kong on February 2, 2012. Photographer: Aaron Tam/AFP/Getty Images

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April 23 (Bloomberg) -- Facebook Inc., the social network planning an initial public offering, said first-quarter profit fell 12 percent as operating costs almost doubled. Bloomberg's Emily Chang reports on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

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April 24 (Bloomberg) -- Bloomberg's Erik Schatzker, Scarlet Fu, Stephanie Ruhle and Sara Eisen report that Facebook said first-quarter profit fell 12 percent as operating costs almost doubled. Net income fell to $205 million in the three months through March and sales climbed 45 percent to $1.06 billion, a slowdown from 55 percent in the December period. They speak on Bloomberg Television's "Inside Track." (Source: Bloomberg)

Expenses surged to $677 million, reflecting higher costs of helping marketers reach Facebook’s growing user base, which swelled by one-third to 901 million last quarter. The company may struggle to reach EMarketer Inc.’s projection for 2012 sales of $6.1 billion as it awaits the full impact of new tools aimed at wringing more money from advertisers, said Debra Aho Williamson, who helped construct the researcher’s estimate.

“Facebook has a pretty steep hill to climb to meet the expectations that we set out,” Williamson said.

Facebook may seek an IPO valuation of $75 billion to $100 billion, people with knowledge of the matter have said. The upper end of that range would value the company at about 25 times trailing 12-month sales, more than double Google (GOOG) Inc.’s valuation when the search-engine operator went public in 2004.

Before last quarter, Facebook’s sales were already projected to gain at a slower rate this year than Google’s at the time of its IPO, according to data compiled by Bloomberg. At $6.1 billion, 2012 revenue would be 64 percent higher than the $3.71 billion reported in 2011. Google’s revenue more than doubled to $3.19 billion the year it went public.

New Benchmark

Facebook unveiled a new benchmark that showed monthly revenue per user climbed 6 percent to $1.21. The company valued its shares at $30.89 apiece at the end of January, up from $29.73 at the end of last year.

Facebook, which plans to raise $5 billion in the largest- ever Internet initial public offering, also disclosed new information about recent acquisitions. To finance the $1 billion purchase of Instagram, announced April 9, Facebook used 23 million shares and $300 million in cash.

Chief Executive Officer Mark Zuckerberg is rolling out new advertising services to step up competition with Google and Yahoo! Inc. (YHOO) and generate higher sales from the advertisers eager to reach Facebook’s user base. During the first quarter, Facebook said it would add mobile advertising along with new ads to reach users when they log off the company’s website.

Zynga Revenue

Facebook said 82 percent of its revenue came from advertising last quarter, down from 83 percent in the preceding period. The company also derived less revenue from gaming company Zynga Inc. (ZNGA), which contributed 11 percent of the total in the quarter, down from 13 percent a year earlier.

The company said it may extend payments outside of games, and charge developers different fees than the 30 percent currently paid by Zynga and other sellers of virtual goods.

The number of daily active users rose to 526 million, an increase of 41 percent from a year earlier. Facebook’s employee base rose 46 percent to 3,539.

“Our costs are growing quickly, which could harm our business and profitability,” the company said in the filing. “Providing our products to our users is costly and we expect our expenses to continue to increase in the future as we broaden our user base, as users increase the number of connections and amount of data they share with us, as we develop and implement new product features that require more computing infrastructure, and as we hire additional employees.”

The company plans to list on the Nasdaq Stock Market under the symbol FB, according to the regulatory filing.

Sales had risen 55 percent to $1.13 billion in the fourth quarter, and net income had climbed 20 percent.

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Apple Profit Rises 94% on Growing Global IPhone Demand

By Adam Satariano - Apr 25, 2012 7:38 AM GMT+0700

Apple Inc. (AAPL) profit almost doubled last quarter, reflecting robust demand for the iPhone in China and purchases of a new version of the iPad, allaying the growth concerns that sliced shares 12 percent in two weeks.

Net income in the fiscal second quarter climbed 94 percent to $11.6 billion, or $12.30 a share, as sales rose 59 percent to $39.2 billion, Cupertino, California-based Apple said today in a statement. Analysts had predicted profit of $10.02 a share on revenue of $36.9 billion, data compiled by Bloomberg show.

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The new iPad in New York City. Photographer: Spencer Platt/Getty Images

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April 24 (Bloomberg) -- Gene Munster, an analyst at Piper Jaffray Cos., talks about Apple Inc.'s fiscal second-quarter earnings and outlook. Apple's profit almost doubled last quarter, reflecting robust demand for the iPhone in China as well as purchases of a new version of the iPad tablet. Munster speaks with Betty Liu and Adam Johnson on Bloomberg Television's "Street Smart." Brian Blair, an analyst at Wedge Partners, and Bloomberg's Jon Erlichman also speak. (Source: Bloomberg)

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April 24 (Bloomberg) -- Paul Kedrosky, author of the Infectious Greed Blog and a Bloomberg contributing editor, talks about Apple Inc.'s fiscal second-quarter results and Facebook Inc.'s business strategy. He speaks with Jon Erlichman on Bloomberg Television's "Bloomberg West." Bloomberg's Emily Chang also speaks. (Source: Bloomberg)

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April 24 (Bloomberg) -- Apple Inc. profit rose almost doubled last quarter, reflecting robust demand for the iPhone in China as well as purchases of a new version of the iPad tablet, allaying the concerns that fueled a 12 percent two-week slump in the stock. (Source: Bloomberg)

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April 24 (Bloomberg) -- Apple sold 35.1 million iPhones in the period after releasing the latest model in China and 21 other countries in January. Bloomberg's Jon Erlichman reports on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

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April 24 (Bloomberg) -- Bloomberg's Alix Steel reports on Apple's second-quarter earnings and iPhone sales. Apple's profit almost doubled last quarter, reflecting robust demand for the iPhone in China. She speaks on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

Chief Executive Officer Tim Cook is relying more on regions outside the U.S. for sales growth. Apple sold 35.1 million iPhones in the period after releasing the latest model in China and 21 other countries in January. That helped make up for sales declines from the previous quarter at the top U.S. mobile-phone carriers, Verizon Wireless and AT&T Inc. It also quelled speculation that Apple’s growth pace may slacken.

“This report should erase any doubt in investors’ minds that this company can’t continue to deliver,” said Jack Ablin, chief investment officer of Harris Private Bank in Chicago, which oversees about $60 billion, including Apple shares. “It’s astounding.”

Apple rose as much as 7.8 percent to $604.22 in extended trading, after having dipped 2 percent to $560.28 at the close in New York.

iPad Sales

The company sold 11.8 million units of the iPad, which was updated last month to include a high-definition screen and faster processor. Apple has sold 67 million iPads since their debuted in 2010. It took the company 24 years to reach that milestone with the Mac computer, Cook told analysts.

Analysts surveyed by Bloomberg on average predicted Apple would sell 11.9 million iPads and 31.2 million iPhones.

The company’s shares had tumbled $75.95 since a record close of $636.23 on April 9 amid reports that indicated a possible shortage in key components for its mobile devices and showed a decline in iPhone sales at wireless carriers. Some traders also took cues from so-called technical indicators that use historical trends to predict stock movements.

The results released today add to evidence of a rebound in some pockets of the economy, lifting results for other technology bellwethers. Microsoft Corp., the top software maker, last week reported better-than-expected corporate purchases of computers, while Texas Instruments Inc., the biggest maker of analog chips, yesterday indicated robust demand for a range of electronics. International Business Machines Corp, the world’s biggest computer-services provider, also reported higher profit.

Rising China Incomes

For Apple, China has made up a growing slice of results since the introduction of the iPhone there in 2009. The most populous country accounted for $7.9 billion of revenue, 20 percent of the total, Cook said on the call with analysts. That’s three times the level for a year earlier, Cook said.

“China has been a very fast-growing region for them,” said Abhey Lamba, an analyst at Mizuho Securities USA Inc. in New York. “There’s more disposable income, strong demand for high-end products and their penetration has been very low in that market. They have been highlighting that region as one of their focus areas.”

Cook visited China last month, meeting with government officials and touring plants where the company’s products are built. The visit came just as a labor group said workers at those facilities, which are operated by Foxconn Technology Group, were violating local laws for excessive work hours. Cook has vowed to improve conditions at the facilities.

Growing Cash Pile

“There is tremendous opportunity for companies that understand China,” Cook said on the call. “We’re doing everything we can to understand it and serve the market as good as we can.”

The company is in talks to sell the iPhone through China Mobile Ltd., the country’s largest carrier. The opportunity to market the iPhone to China Mobile’s more than 600 million subscribers would give Apple added scope for growth in Asia.

Apple sold 4 million Mac computers and 7.7 million iPods, compared with 4.5 million Macs and 7 million iPods projected by analysts. Apple added to its cash hoard during the quarter. The company said it now has $110.2 billion in cash and investments on its balance sheet. Part of that sum will be returned to investors starting later this year, when Apple plans to start paying a dividend and buying back shares.

New IPhone?

Looking ahead to results for the current quarter, Apple forecast revenue of about $34 billion and profit of $8.68 a share. That compares with average analysts’ predictions for sales of $37.5 billion and profit of $9.96 a share.

The results will be lower because Apple doesn’t expect to sell as many iPhones in the quarter now under way, said Peter Oppenheimer, Apple’s chief financial officer. Customers often hold off on purchases of the iPhone in the months before Apple releases an upgrade. Analysts including Chris Whitmore of Deutsche Bank AG have predicted that Apple will introduce a new iteration of the handset later this year.

Cook, who took over for late co-founder Steve Jobs last year, hinted at new products that will be released.

“You’re going to see a lot more of the kind of innovation that only Apple can deliver,” Cook said in a statement.

Cook also discussed one product Apple won’t be making. He said Apple doesn’t intend to follow the lead of Microsoft, which is introducing a new operating system that will run on smartphones, tablets and personal computers. Cook said users prefer to have different experiences on mobile devices and PCs.

Toaster-Fridge Convergence

“You can converge a toaster and a refrigerator, but those things are probably not going to be pleasing to the user,” Cook said.

Apple benefited last quarter from lower operational costs, including lower component prices. Gross margin, the percentage of sales remaining after deducting costs of production, was 47.4 percent, compared with 41.4 percent a year earlier.

In China and elsewhere around the world, Apple is in the midst of a growing rivalry with Samsung Electronics Co. (005930), Asia’s largest consumer-electronics maker. While Samsung is a supplier of components for Apple devices, it also is among the biggest makers of products that run Google Inc.’s Android software. Earlier this month, Samsung reported profit rose to a quarterly record of 5.8 trillion won ($5.1 billion).

Samsung is one of several companies entangled in patent litigation with Apple in the U.S., Europe and Asia.

Cook said that while he’d prefer to settle the lawsuits than battle in court, he didn’t give any details on when such a deal may be reached.

“We need people to invent their own stuff,” Cook said.

Apple’s results contrast with those of Research In Motion Ltd. (RIMM) and Nokia Oyj, which have cut jobs and reorganized operations after falling behind in smartphone sales.

Apple’s growth also is bringing more government scrutiny. The U.S. Justice Department is suing Apple for allegedly colluding with book publishers to raise the price of e-books. Apple has denied wrongdoing.

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

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Apple Found to Violate One Patent on Android Phones

By Susan Decker - Apr 25, 2012 3:38 AM GMT+0700 .

Motorola Mobility Holdings Inc. (MMI) won a partial U.S. International Trade Commission judge’s ruling in its bid to block imports of Apple Inc. (AAPL)’s devices including the iPhone and iPad tablet computer.

Apple violated one of four Motorola Mobility patent rights being contested, ITC Judge Thomas Pender said in a notice posted today. The patent relates to 3G technology. The other three patents weren’t violated, according to the notice. Pender’s findings are subject to review by the six-member commission, which can block imports that infringe U.S. patents.

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IPhone 4S models at an Apple Store in Beijing on Jan. 13, 2012. Photographer: Andy Wong/AP Photo

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iPhones in San Francisco. Photographer: David Paul Morris/Bloomberg

The findings, along with a separate determination yesterday in a Motorola Mobility patent case against Microsoft Corp. (MSFT), are part of a global fight in a mobile-device market Yankee Group projects will expand to $360 billion this year. Google Inc. (GOOG) has said its $12.5 billion purchase of Motorola Mobility and its trove of patents may protect it against litigation by rivals to its Android operating system.

“These are long wars, and it’s one more battle in the war,” said Carl Howe, an analyst with Yankee Group. “It’s about accumulating as much intellectual property as possible. It’s not good for innovation if you do that, but that seems to be where we’re heading.”

Apple Confident

The six-member commission is scheduled to complete the investigation by Aug. 23. Should it decide an import ban is warranted, that decision is subject to review by both President Barack Obama and an appeals court that specializes in patent law.

“A court in Germany has already ruled that Apple did not infringe on this patent, so we believe we will have a very strong case on appeal,” Kristin Huguet, an Apple spokeswoman, said in a telephone interview, referring to the one patent Apple was found to have violated.

Apple slid $11.42, or 2 percent, to $560.28 at 4 p.m. in Nasdaq Stock Market composite trading. Motorola Mobility fell 29 cents to $38.14 at 4:15 p.m.

“We are pleased that the ALJ’s initial determination finds Apple to be in violation of Motorola Mobility’s intellectual property, and look forward to the full commission’s ruling in August,” Becki Leonard, a spokeswoman for Motorola Mobility, said in an e-mailed statement.

IPhone, Android

Motorola Mobility filed the complaint Oct. 1, 2010, amid statements by Apple that phones running on Google Inc.’s Android operating system copied the iPhone. Android has become the most popular platform for mobile devices.

Apple, which had $108.2 billion in sales last year, has denied infringing Motorola Mobility patents and challenged their validity. The patent it was found to have violated covers industry-standard technology and Motorola has refused to license it to Apple on reasonable terms, Huguet said.

The European Union is investigating complaints by Microsoft and Apple that Motorola Mobility is unfairly using standard- essential patents to block competition.

Patent lawsuits over smartphone technology were filed on four continents, with a dozen at the ITC alone. Companies are fighting for an added share of a market that researcher Gartner Inc. said rose 47 percent in the fourth quarter. Cupertino, California-based Apple has pending ITC complaints against Android-phone makers HTC Corp. and Samsung (005930) Electronics Co.

Google Acquisition

Apple lost its own ITC case, filed Oct. 29, 2010, in which it sought to block imports of Motorola Mobility’s Android phones. Apple is appealing the decision.

Google, based in Mountain View, California, agreed to buy Motorola Mobility after the case was filed and will inherit the dispute once the deal is completed. European and U.S. regulators have approved the acquisition, which is under review by Chinese authorities.

The patent that was found to be infringed covers a way to eliminate noise so signals are clearer. A Wi-Fi patent is invalid because it doesn’t cover a new invention, the judge said. No infringement was found on two other patents, for a way the server tracks which applications are available, and a sensor to determine the proximity of a person’s head to the phone so it doesn’t accidentally hang up or dial unwanted numbers.

Pender’s full decision will be posted after both sides get a chance to redact confidential information.

ITC Judge David Shaw said yesterday that Microsoft was infringing four other Motorola Mobility patents, including three that read on Wi-Fi and video-decoding standards. If the commission agrees, it could block imports of Microsoft’s Xbox gaming system.

Smartphone Market

Apple had 29 percent of the smartphone market in 2011, compared with less than 8 percent for Motorola Mobility, according to researcher Strategy Analytics. When it comes to operating systems, the Android platform had 55 percent, Apple held 29 percent, and Microsoft’s Windows Phone had about 3 percent.

Android was introduced on handsets to further Google’s advertising business and is provided free to device makers including Motorola Mobility, Samsung and HTC. (2498) Apple’s operating system, which it developed, is available only on Apple products.

The case against Apple is In the Matter of Wireless Communication Devices, Portable Music and Data Processing Devices, Computers and Components Thereof, 337-745, and Apple’s case against Motorola Mobility is In the Matter of Mobile Devices and Related Software, 337-750, both U.S. International Trade.

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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