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Apple Q1 earnings top records, forecasts

Company enjoys promise of iPhone, faces perils of stock-options probe

By Robert Mullins
January 18, 2007 12:00 PM ET

 Apple Inc., caught between the promise of its new iPhone and the peril of a stock-options investigation, reported record earnings yesterday for the first quarter of its fiscal 2007 year.

Apple posted net income of $1 billion, or $1.14 per diluted share, on revenue of $7.1 billion, for the quarter that ended Dec. 31, 2006.

The consensus from financial analysts polled by Thomson Financial was for earnings of 78 cents per share on revenue of $6.42 billion in the first quarter.

These results compare with net income of $565 million, or 65 cents per diluted share, on revenue of $5.7 billion, in the year-ago quarter.

The company reported a gross margin of 31.2%, up from 27.2% in the year-ago quarter. Apple has dropped "Computer" from its company name to reflect its broadening array of consumer electronics products, such as its popular iPod music player.

"These are stellar results," said Apple Chief Financial Officer Peter Oppenheimer, in a conference call with stock analysts.

Apple sold 1.6 million of its Macintosh computers and more than 21 million iPods in the quarter, which covered the holiday shopping season, up 28% and 50%, respectively, from the year-ago quarter, Oppenheimer said.

Apple released its latest financial results one week after CEO  Steve Jobs unveiled the new iPhone at the company's annual Macworld Conference & Expo in San Francisco. The iPhone, which will go on sale in June in the U.S., combines a cell phone, a video and music iPod and an Internet connection device into one package. Apple said the phone will be available in the U.S. only through Cingular Wireless LLC.

Although well received by Mac fans at the convention, some skeptics wonder whether, at a pricey $499 to $599 plus Cingular subscription costs, the iPhone will find many buyers.

Apple was promptly sued in federal court in San Francisco by Cisco Systems Inc., which claims the trademark to the name iPhone.

Oppenheimer characterized the suit as "silly" and Cisco's trademark claim as "tenuous at best."

Apple is also facing other legal jeopardy, as the U.S. attorney's office for the Northern District of California confirmed Jan. 12 that it is investigating how Apple accounted for backdated stock options.

Oppenheimer said only that Apple is "proactively and voluntarily providing information to [investigators] of our own findings and answering their questions."

In a Dec. 29  filing with the U.S. Securities and Exchange Commission, Apple disclosed the results of an internal board investigation into backdating. It found that an October 2001 board meeting at which 7.5 million options for Jobs were granted never took place, and that the options weren't officially granted until December of that year. Backdating the options grant date to October, though, gave Jobs an instant paper profit of about $20 million because Apple stock was selling for less in October than it was in December.

Apple said it would restate $84 million in earnings from 2006 to account for more than 6,400 backdated stock-option grants made between 1997 and 2002.

"The board of directors...has complete confidence in Steve Jobs and the senior management team," stated Al Gore, former U.S. vice president and the Apple director who headed the special internal investigative committee.

Apple is forecasting current-quarter earnings per diluted share of between 54 cents and 56 cents on revenue of between $4.8 billion and $4.9 billion.

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