Apple Earnings: Mac sales rise but!

iPod sales slip for holiday quarter

Capturing headlines for a big Wednesday event that’s expected to launch a new tablet device, put the speculation on hold long enough to report its first quarter earnings, which would include holiday sales. (Statement, Techmeme)

The company appears to far exceed analysts expectations. Apple reported a net profit of $3.38 billion, $3.67 per share, with sales at $15.68 billion. Analysts at Wall Street have been expecting earnings of $2.07 per share from the $12.06 billion in sales. But also note that Apple changed it's accounting processes during this quarter, changing the way it counts sales that are subscription-centric products.

For a better understanding of how the company fared during the quarter, consider how the company did on key product sales. It sold 3.36 million Mac computers, a 33 percent jump over the year-ago quarter. It reported sales of 8.7 million iPhones, or 100 percent unit growth over a year ago. But iPods sales, which came in at 21 million during the quarter, actually represented an eight percent decline from a year ago.

Mac sales exceeded estimates but iPhone sales missed targets, despite the company highlighting it as a strong performer. On the call with analysts, the company was asked if AT&T’s service problems might be having an impact, as well. Chief Operating Officer Tim Cook responded by saying that AT&T has been a good partner and that, aside from a few key cities where AT&T has already acknowledged some service issues, Apple’s own research finds that in the “vast majority of locations, iPhone customers are having a great experience.”

Going back to that accounting matter, CFO Peter Oppenheimer explained that, because of a change in accounting reporting rules, Apple now recognizes iPhone product revenue immediately, instead of over 24 months the way it did under the previous accounting method.

The previous method was used because these particular products might come with future software upgrades or additional tools. A rule change allows the company to now report the sales of such products in two ways: 1) the hardware and software itself, which is recognized at the time of sale, and 2) the right to an upgrade, which has a value placed on it ($10 for Apple TV and $25 for the iPhone) that’s spread over the 24 month period. In essence, that means nearly the full amount of the sale is recognized immediately.

The company has gone back to fiscal year 2007 to revise all of its financial statements to reflect the new accounting method.

For the March quarter, the company expects earnings to be in the range of $2.06 to $2.18 per share, compared at the $1.79 for the year-ago quarter. Sales are expected to be between $11 and $11.4 billion, compared to it's $9.4 billion in the year-ago quarter,

The company was asked - but didn’t offer hints - about Wednesday’s event. Specifically, analysts wanted to know if the guidance included any sales of, yet-to-be announced products. Execs didn’t cave. But in statement in the company’s press release, CEO Steve Jobs seemed to give a bit of a wink with his prepared quote: “The new products we're planning to release this year are very strong, starting this week with a major new product that we’re really excited about.”

Shares of Apple were up slightly, closing at $203.07.