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Apple profit shatters expectations
[January 19, 2011]

Apple profit shatters expectations

Jan 19, 2011 (Los Angeles Times - McClatchy-Tribune Information Services via COMTEX) -- REPORTING FROM SAN FRANCISCO AND LOS ANGELES -- Apple found a way to divert attention from Chief Executive Steve Jobs' health Tuesday -- a blowout $6 billion in profit.

A day after Jobs stunned investors and employees alike by announcing he was taking medical leave for the third time in seven years, Apple Inc. crushed analysts' estimates with record first-quarter revenue and earnings.

The company's stock rallied on the report, buoyed by impressive sales of iPhones, iPads and a pipeline of consumer gadgets. Shares fell a less-than-anticipated 2.2% to $340.65 in regular trading and regained ground in extended trading to $344.70, after it announced financial results.

In a conference call with analysts, Chief Operating Officer Tim Cook, who is filling in for Jobs during his medical leave, said, "In my view, Apple is doing its best work ever. We feel very, very confident about the future of the company." Apple's first-quarter profit surged 78% to $6 billion, or $6.43 a share as sales soared 71% to a record $26.74 billion, the Cupertino, Calif., company said.

All of Apple's key products exceeded sales expectations. The company sold 16.2 million iPhones in the quarter, up 86% from a year earlier. It also sold 7.33 million iPads, which went on sale last April. Macintosh computer sales jumped 23% to 4.1 million units.

Bolstered by the strong results, Apple said it would exceed analysts' projections for the second fiscal quarter, with earnings of $4.90 a share on revenue of $22 billion, compared with Wall Street estimates of $4.47 a share on $20.8 billion in sales. The rosy forecast was unusual because Apple likes to issue conservative forecasts.

In a prepared statement, Jobs said: "We are firing on all cylinders." Jobs' unexpected announcement Monday that he was stepping away from day-to-day operations to focus on his health has raised anxieties about the future of innovation at Apple and the leadership of the world's most valuable technology company.

Investors are nervous that no one else can exert Jobs' influence or slide into his many roles at Apple as product visionary, company pitchman and chief negotiator. They listened closely for any clues about the seriousness of the unspecified medical issue that is sidelining him. But Apple, known for its cloak of corporate secrecy, didn't let any new information slip.

"This was a very positive report that should help calm some investors' fears about what the future holds for Apple," said Michael Yoshikami, chief investment strategist at YCMNet Advisors in Walnut Creek, Calif., who owns the stock. "But if Steve Jobs leaves the company on a permanent basis, it will create a visionary hole in the company. And it's not clear at this point who would fill that hole." In a statement Monday, Jobs did not say when he would return, setting off a firestorm of speculation that his condition could prevent him from retaking the helm in 2011, or at all. Concern about Jobs' health had intensified in recent weeks as he appeared gaunt after treatment for a rare form of pancreatic cancer and the liver transplant he had nearly two years ago.

The announcement was big news in Silicon Valley, where Jobs is revered as the top entrepreneur and technologist of his generation. Facebook CEO Mark Zuckerberg posted a public message to Facebook from his iPhone expressing hopes that Jobs would "get better soon." A person close to the Apple co-founder expects him to remain very involved in the company's strategy and the development of its products. The person, who spoke on condition she not be identified because she wants to maintain the relationship, said it was significant that he had decided to hang on to his CEO title. "This does not mean that Steve is not coming back," she said.

"Steve Jobs has done an excellent job of institutionalizing his values and beliefs into the company," Kaufman Bros. analyst Shaw Wu said. "His spirit is embedded in the culture." Analysts and former employees say Jobs over the years surrounded himself with a team of executives whose skills complement his own.

"Steve will be first to tell you that he is not a one-man company. Apple's success is drawn on the hard work of a top-notch executive staff and hundreds if not thousands of Apple employees who work their butts off to bring great products to market," said Tim Bajarin, who follows Apple for Silicon Valley research firm Creative Strategies Inc.

Cook said Apple sees "enormous opportunities" as it begins to penetrate the tablet computer market. Apple is known for seizing on existing devices, such as MP3 music players, and transforming them into must-have gadgets, like the iPod. Even as competition has increased, rivals lag Apple by at least two years, analysts said.

Apple also targets large markets where there is room for more than one competitor. Competition for its iPhone and iPad is coming from mobile phones running Google Inc.'s mobile operating system and tablet computers coming from Research in Motion, Samsung Electronics and others.

Cook also predicted a "huge" demand for the iPhone 4 when Verizon Wireless starts selling it next month, even as Apple wrestles with a "significant" backlog.

"We're going to do everything possible to get the iPhone into as many of those customers' hands as possible," Cook said. "We are working around the clock to build more." Cook, a veteran of IBM Corp. and Compaq Inc. who has filled in ably during Jobs' previous leaves in 2004 and 2009, joined Apple in 1998 and helped stabilize the company after a rash of problems with products and operations. He is known as a thoughtful leader who obsesses over the details of running the business much in the same way Jobs obsesses over the details of Apple's products. Apple has not disclosed a succession plan, but Cook is widely viewed as the executive who would replace Jobs as CEO.

"If you survey 1,000 investors and ask about Tim Cook, 999 would say he has done an outstanding job," Piper Jaffray analyst Gene Munster said. "He has had two very intense tests over the last seven years and he aced both of them." Other key members of Jobs' team include Jonathan Ive, senior vice president of industrial design, a British-born designer who is responsible for the look and feel of Apple's products; Philip Schiller, senior vice president of worldwide product marketing, who has in the past filled in for Jobs as Apple's public face at events; Ron Johnson, senior vice president of retail, who has helped Apple open hundreds of stores; and Scott Forstall, senior vice president of iPhone software, who has given Apple an edge as software becomes increasingly important in the development of mobile phones and tablet computers.

Still, none of the executives have Jobs' star power.

Ultimately Apple is not Apple without Jobs, Munster said. "To think of a world without Steve Jobs is a really scary thought because he has had such a major influence on all of our lives whether we know it or not," he said.

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