Apple Jumps as Price Cuts Buoy Profit Through PC Market Slump

Apple Jumps as Price Cuts Buoy Profit Through PC Market Slump


July 22 (Bloomberg) -- Apple Inc. jumped as much as 4.8 percent in early U.S. trading after price cuts attracted more first-time buyers for Macintosh personal computers last quarter, helping sales and profit top analysts’ estimates.

Mac sales accelerated after Apple sliced prices in June, Chief Operating Officer Tim Cook said yesterday. The company sold 2.6 million Macs, beating the 2.4 million predicted by Shaw Wu, an analyst at Kaufman Bros. in San Francisco. Sales of the iPhone also topped estimates.

“The Mac sales were huge,” said Wu, who recommends buying Apple shares and doesn’t own them. “Their business continues to hold up really well.”

Apple posted a 12 percent gain in sales and a 15 percent increase in third-quarter profit, even as other technology companies cope with waning demand from consumers and businesses. Yahoo! Inc., owner of the second most-visited group of Web sites in the U.S., reported sales yesterday that failed to top analysts’ estimates. The company’s forecast also signaled that demand for online advertising isn’t recovering.

“Online ads are still slow,” said David Rudow, an analyst at Thrivent Asset Management in Minneapolis. He helps manage about $69 billion, including shares of Apple and Yahoo. “Marketing spend will turn up next year, when end demand picks up.”

Apple, based in Cupertino, California, rose as much as $7.33 to $158.84 in trading before U.S. exchanges opened. The stock, up 78 percent this year, closed at $151.51 on the Nasdaq Stock Market. Yahoo fell as much as 4.5 percent to $16 after closing at $16.75 in regular Nasdaq trading. The stock has gained 37 percent this year.

Jobs’s Absence

Investors didn’t get a chance to hear from Apple Chief Executive Officer Steve Jobs, who returned from a 5-1/2 month medical leave in June after having a liver transplant. Jobs, 54, has only participated on the earnings call once in the past eight years.

Apple reported net income of $1.23 billion, or $1.35 share, surpassing the $1.17 estimated by analysts in a Bloomberg survey. Sales in the quarter ended June 27 rose to $8.34 billion, topping analyst estimates of $8.21 billion.

Apple lowered prices by as much as $300 on its MacBook Pro notebooks to court more PC buyers, Cook said. Mac sales increased 4 percent in the quarter. That compares with the 3.1 percent decline industrywide in the second quarter, according to research firm IDC.

Morgan Stanley raised its price goal on Apple to $195 from $180. Deutsche Bank AG boosted its target to $225 from $150 and Goldman Sachs Group Inc. raised its estimate to $175 from $160.

‘Premium Brand’

“It’s a premium brand, and if you drop the premium a little bit, you’re going to get a little bit of extra demand,” said Ronald Gruia, an analyst with research firm Frost & Sullivan in Toronto.

Apple still hasn’t figured out how to build a “great product” for $399 or $499, Cook said, after analysts asked if the company plans to deliver even cheaper models.

IPhone sales increased sevenfold to 5.2 million units, including the new 3GS model and a $99 version of the iPhone 3G, Apple said. That beat Wu’s estimate of 4.1 million. Apple can’t keep up with demand in the 18 countries where the 3GS model is now sold, a situation that won’t change in the “short term,” Cook said.

IPod sales slipped to 10.2 million players from 11 million a year ago, a drop Chief Financial Officer Peter Oppenheimer said the company expected as customers shift away from MP3 music players including the iPod Shuffle, iPod Nano and the original iPod.

“We expect our traditional MP3 players to decline over time as we cannibalize ourselves with the iPod Touch and the iPhone,” Oppenheimer said on a conference call. “Even so, the traditional iPod business should still last for many, many years.”

Ad Slump

Yahoo, which makes about 88 percent of its revenue from advertising, couldn’t overcome a slump in demand for ads that appear on its Web sites and next to Internet-search results. The company forecast third-quarter sales of $1.45 billion to $1.55 billion, compared with the $1.54 billion expected by Jim Friedland, an analyst at Cowen & Co. in New York.

“There’s no way advertisers are going to start to spend before the recovery emerges,” said Friedland, who has a neutral rating on the stock and doesn’t own any. “Yahoo is exposed cyclically on the way down, but also on the way up.”

Growth of U.S. online ad spending will slow to 4.5 percent in 2009, from 11 percent last year, according to EMarketer Inc., a research firm in New York. Yahoo CEO Carol Bartz said yesterday that an economic recovery is still difficult to predict.

‘Bumping Along’

“As far as the economy goes, it’s easy to assume it’s bumping along the bottom,” said Bartz, 60. “But in all honesty, there’s just so much conflicting information in the market that it’s just too early to call.”

Second-quarter net income rose to $141.4 million, or 10 cents a share, from $131.2 million, or 9 cents, a year earlier. Excluding some expenses, profit was 16 cents a share. Analysts in a Bloomberg survey had estimated 14 cents a share.

Excluding fees passed on to partner sites, sales were $1.14 billion, meeting analysts’ predictions.

Bartz, who joined in January as CEO to lead a turnaround, has fired workers, reassigned executives and jettisoned products. Yesterday, Yahoo started testing a new version of its home page. The new site is designed to make it easier for users to access content from all over the Web, including social- networking services such as Facebook Inc.

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