The earnings report Wednesday came as Apple faces scrutiny over last week's announcement that CEO Steve Jobs would take a leave of absence for health reasons. Apple executives on the call offered no new information about his condition, however.
Net profit for Apple's fiscal first quarter that ended Dec. 27 reached US$1.61 billion, or $1.78 per share, Apple said. Analysts polled by Thompson Reuters had expected net income of $1.27 billion and earnings per share of $1.39.
The earnings are up just barely from the same quarter last year, when Apple reported a profit of $1.58 billion and earnings per share of $1.76.
Revenue was $10.17 billion, compared with $9.6 billion last year.
Apple sold 2.5 million Macintosh computers during the quarter, up 9 percent over last year. IPod sales growth has slowed, though, with 22.7 million sold in the quarter, up just 3 percent.
Both product sectors did better worldwide than in the U.S., where iPod sales actually decreased. Sales of Macintosh computers in the U.S. grew just 2 percent, while sales in several other countries, including Canada and Italy, were up 20 percent, said Tim Cook, Apple's chief operating officer, during a conference call to discuss the results.
Sales of desktop computers declined dramatically, down 25 percent compared to the year before. Cook blamed a particularly strong quarter the year before for dragging down the comparison. He also noted that the global market for desktops declined overall, reflecting a shift toward laptops.
A foray into netbooks to make up for declining desktop sales is unlikely from Apple. Despite success in this market for other companies, Cook maintained that the small keyboards and displays probably won't attract many customers. "It's one to watch and we've got some ideas, but right now we think the products are inferior and will not provide an experience to customers that they are happy with," he said.
IPhone sales continue to grow rapidly. Apple sold 4.4 million of the devices, representing 88 percent growth over the same quarter in 2008.
Cumulatively in 2008, Apple sold 13.7 million iPhones, now available in 70 countries. IPhone users have downloaded over 500 million applications, of which there are now more than 15,000 available in the App Store, Apple said.
Still, Apple is trying to grapple with how to better approach markets that typically don't subsidize handsets. iPhones sales have been lower in countries where operators don't subsidize phones, and thus sell the iPhone for a higher price than many other types of phone, said Cook. "We're constantly evaluating the best way to play in these markets. We know there's a huge market opportunity there and we'll make adjustments in the future accordingly to play in a stronger way," he said.
That doesn't mean Apple plans to alter its basic strategy with the phone. "We're not going to play in the low-end voice phone business," Cook said. "We'll let somebody else do that. Our objective is not to be the unit share leader in cell phones, it's to build the world's best phone."
Cook said that Apple is keeping a close eye on competitors that are trying to emulate the iPhone. "We like competition, as long as they don't rip off our IP," he said. He would not name specific companies that might be mimicking Apple's technology, but he spoke in response to a question about Palm's Pre. Set to hit the market in the first half of this year, the Pre will feature a multitouch screen, much like the iPhone.
Apple said it expects continued success despite the ailing economy. For its second quarter of fiscal 2009, Apple expects revenue between $7.6 billion and $8 billion and earnings per share of $.90 to $1.00.
Apple executives did not offer additional details about Jobs' health and only one analyst on the conference call asked questions about it. "Steve is CEO of Apple and plans to remain involved in major strategic decisions, and Tim will be responsible for day-to-day" operations, Peter Oppenheimer, Apple's CFO, said during the call, referring to Cook.
A week ago Jobs disclosed in a letter to employees that health issues required him to take a leave of absence until the end of June. The announcement came a little over a week after he revealed that his gaunt appearance lately, which has been the subject of much speculation, had been caused by a hormone imbalance.
When announcing his leave, Jobs declined to reveal further details about his condition except to say that it was more complex than he originally thought. The setback follows surgery he underwent in 2004 for pancreatic cancer.
Apple's share price tends to rise and fall based on rumors regarding Jobs' health. While many companies have charismatic leaders, Jobs is thought to control even minor decisions at Apple, the company he co-founded in the 1970s and brought back to life after returning to it in the mid-1990s.
"Unfortunately, the curiosity over my personal health continues to be a distraction not only for me and my family, but everyone else at Apple as well," Jobs wrote in his letter to employees last week. "In order to take myself out of the limelight and focus on my health ... I have decided to take a medical leave of absence until the end of June."
The questions about Jobs's health and its impact on Apple's stock price may have drawn the attention of regulators at the U.S. Securities and Exchange Commission. The commission is examining Apple's statements about Jobs's health to determine whether the company misled investors, according to a Bloomberg story published on Wednesday citing unnamed sources. The SEC declined to comment on the report.