Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Teens shop at an Apple store in New York (Spencer Platt/2010 Getty Images)
Teens shop at an Apple store in New York (Spencer Platt/2010 Getty Images)

Apple shines as profit nearly doubles Add to ...

For once, Apple Inc. is suffering from a tablet problem - a problem its competitors wish they had.

Its recently released iPad 2 is so popular the company can't meet demand and is dealing with "the mother of all backlogs," according to chief operating officer Tim Cook.

Despite selling fewer-than-expected iPads, however, the most valuable technology company in the world posted fiscal second-quarter numbers that easily beat analyst expectations.

More related to this story

The computer maker posted revenue of $24.67-billion (U.S.) and profit soared 95 per cent to $5.99-billion, or $6.40 per diluted share, during the quarter ended March 26. During the same period last year, revenue was $13.5-billion and profit was $3.07-billion, or $3.33 per diluted share.

For this quarter, analysts had expected earnings per share of $5.37 on revenue of $23.3-billion - well below Apple's actual results. The company's own guidance for the quarter, which it gave out in January, was even lower.

However Apple shipped only 4.69 million iPad tablets during the quarter, falling short of the Street's expectations, which hovered around the six-million mark. The miss is in large part a result of the transition to a second-generation tablet - the iPad 2 - in March. Apple would not release the breakdown of iPad versus iPad 2 sales during the quarter, but because consumers had anticipated the new tablet months ahead of time, it appears many opted to wait, rather than buy the older version.

As a result, Apple has so far struggled to meet iPad 2 demand, with almost all stores still sold out today, more than a month after the product went on sale.

"Demand on the iPad 2 has been staggering," Mr. Cook said. "I'm still amazed that we're still heavily backlogged."

The company continued to see a halo effect from the surging sales of its mobile devices, as more customers switched their hardware purchases - including desktops and laptops - to Apple. Mac computer sales jumped 28 per cent year over year, and iPhone shipments more than doubled. The only product category in which the company continues to see strong declines is iPods. However, that's in part because many consumers are moving from Apple's lower-end MP3 players to more powerful - and expensive - Apple gadgets.

"Apple is the company that is best capturing revenue and profits from the mobile revolution, in our opinion," said Colin Gillis, director of research and senior technology analyst at BGC Financial. "No other company in the space can approach the platform and ecosystem that Apple has built to generate such revenue and profits." While there are others with meaningful market share, they "significantly lag in generating revenue, and none deliver equivalent profits, in our view," he said.

However, some analysts caution that investors may begin wondering just how long Apple will be able to sustain its virtuous and highly lucrative product cycle, which began with the iPod line and has grown to include tablets and smart phones.

"Apple still has a large iPad2 cycle ahead, a strong iPhone opportunity still ahead … and continued Mac opportunity," said RBC Dominion Securities analyst Mike Abramsky prior to the earnings announcement.

Apple also sought to assure investors on Wednesday that it has suffered no serious supply or cost issues as a result of the natural disasters in Japan. Although the company sources hundreds of parts from Japan, Mr. Cook said Apple suffered no significant impact from the disaster in the second quarter, and doesn't expect such an impact during this one.

For now, it appears that Apple's biggest problem is getting enough iPad 2 tablets in stores to meet demand, and the company still can't predict exactly when that will happen. Said Mr. Cook: "iPad 2 has the mother of all backlogs."

Follow on Twitter: @omarelakkad

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories