by , 7:00 PM EST, January 14th, 2004

Apple Computer said Wednesday that good iPod, Panther OS and PowerBook sales boosted revenue by 36 percent in the fiscal first quarter, beating Wall Street estimates by two cents as the Macintosh maker reported the biggest quarter in terms of revenue in four years.

Apple said it earned US$63 million, or 17 cents a share, for its fiscal first quarter ended Dec. 27, compared to a loss of US$8 million, or 2 cents a share. Analysts surveyed by Thomson First Call estimated Apple would earn 15 cents a share on sales of US$1.93 billion. Sales rose to US$2 billion from US$1.47 billion in the same period last year. Apple said it recorded an after-tax investment of US$3 million, which boosted earnings by a penny a share. That was related to the sale of stock in hosting company Akamai Technologies.

Apple shipped 733,000 iPod music players in the quarter, a 235% increase from a year earlier. Macintosh shipments rose 12% to 829,000 on revenue of US$1.2 million. Breaking down the numbers:

The only unit down sequentially in sales from the year ago was the iMac product line. Earlier today, TMO reported that analyst Steven Milunovich of Merrill Lynch said in a report that an update to the iMac form factor was needed soon. Apple's reported results support that idea.

The company said portable units represented a record-high 48% of all Mac systems sold during the quarter. PowerBook sales were also at a record high.

Gross margins fell to 26.7% from 27.6% a year earlier. The results were higher than expected due to "higher warranty expense than expected," the company said.

In a conference call with analysts and the press, Apple CFO Fred Anderson said the company was upbeat about Christmas season sales, despite signs US consumers were tight with their wallets in a slowly recovering economy.

"I would say that the positives were some over performance on the iPod, the record sales on the PowerBook and we had a great quarter, as expected, on the upgrade sales of Panther," said Anderson.

Anderson said sales through its 73 Apple retail stores nationwide are improving, delivering a US$9 million profit in the last quarter. This marks the first time Apple has turned a direct profit from its retail operations. The stores generated revenue of retail stores had $273 million, up 84% from the year ago quarter. The average revenue per store was US$4 million, compared to about US$3.1 million a year ago.

Eight new stores were opened during the quarter, including the company's first international store in Tokyo, Japan. The Tokyo stores first month sales were the highest ever at US$1 million per week. Apple plans to have 80 stores open by back-to-school time. At present, the company has 73 stores open worldwide. The Osaka, Japan Apple Store will be opening in the Fall of this year and the San Francisco store will open in the Spring.

Anderson said international sales were surprisingly strong in the quarter. Sales in the Americas were up 25% from a year ago, Europe up 48%, and Japan up 13%.

Despite selling over 733,000 iPods in the quarter, Anderson said Apple did suffer from not being able to fulfill customer demand for the product. "We were unable to meet all the demand," he said. "We clearly had reports of a lot of stock outs of certain models around the world...We had a great quarter, but it could have been higher had we not had the shortages."

Looking forward, Anderson said Apple expects to earn between 8 cents and 10 cents a share on revenue of US$1.8 billion for its current, second quarter. Analysts previously estimated Apple would earn 7 cents a share on sales of US$1.70 billion. The company is expecting gross margins to be around 27.5% based on LCD prices being flat and memory prices trending down.

"We expect our third consecutive quarter of year-over-year, double digit growth in both revenue and earnings," Anderson said.

Other highlights of the conference call included:

- Operating profit expanded to 3.7% of sales, the company's highest quarterly operating margin in 13 quarters.

- Sales of the Panther Mac OS upgrade, which was released during the quarter, were very strong, Anderson said, making up US$60 million of the US$235 million revenue for software. Apple expects lower Panther sales in the second quarter.

- 30 million songs have been purchased and downloaded from the iTunes Music Store since its inception, seven million in the month of December.

- Power Mac sales were better for the last quarter than the previous quarter. Ending channel inventory decreased substantially and the company met its own expectations. Dual processor sales were stronger than expected.

- Anderson said the company is hoping for continued gross profit margins on iPods to remain around 20%.

- 5.9 million people visited Apple retail stores in Q1, or about 6,000 people, per store per week.