Apple Profits Off Pod People

It may be expensive, and it may still use that homely, old-fashioned Mac font, but the iPod is selling like, well, like the iPod. In its second quarter, Apple (Nasdaq: AAPL  ) sold more of the pocket-sized music players than it did computers. That's more than it sold during the busy holiday season, and it makes for a fabulous-looking year-over-year increase of units shipped topping 900%.

Overall, sales growth was 29%, and the revenue boost trickled down to the bottom line, yielding earnings per share of $0.14 -- before a charge -- tripling last year's results, and topping analysts' expectations for a dime per stub.

And there was much rejoicing. The stock shot up over 7% to a 52-week high. Analysts are gushing. The Mac faithful are cheering. So why am I just sitting here with a curious look on my face? It's because Apple's got a few questions to answer before it looks smart for investors to rush into this party.

First, a nit to pick. Hey, Apple, what's the effect of foreign exchange? When 43% of your revenue comes from overseas, and the dollar has seen an ugly haircut over the past year, you need to explain how much of your 29% year-over-year revenue growth is owed to the currency fluctuation.

Next, what about computers? Central processing unit (CPU) sales were up a slim 6%, which lags the worldwide computer market's recent gains. During today's conference call, management didn't have a good answer to that criticism, other than to say that they "hear" that people who are buying iPods are also buying Macs. Sure, guys. Mind if we see some numbers on that?

And finally, how good is this music business? The much talked-about iTunes service may make headlines, but it's barely profitable. And margins on the iPod are expected to drop drastically once the mini can keep up with demand. Until now, competition in both segments, from the likes of Wal-Mart (NYSE: WMT  ) , Microsoft (Nasdaq: MSFT  ) , Roxio (Nasdaq: ROXI  ) , and Dell (Nasdaq: DELL  ) , has proven a bit inept. However, smart, ruthless competitors run these companies, and I wouldn't bet my savings that they won't figure out a way to steal Apple's lunch money.

Apple has earned the right to enjoy the iPod's success, but investors need to be very careful that they aren't saddling up a one-trick pony.

Dell is one of David Gardner'sMotley Fool Stock Advisorrecommendations. You can sign up for six months with a money-back guarantee.

Fool contributor Seth Jayson finds Mac zealots even more baffling than Linux zealots. He has no stake in any company mentioned above. View his Fool profile here.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 506996, ~/Articles/ArticleHandler.aspx, 10/22/2016 12:40:04 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 15 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
AAPL $116.60 Down -0.46 -0.39%
Apple CAPS Rating: ****
DELL.DL $0.00 Down +0.00 +0.00%
Dell CAPS Rating: *
MSFT $59.66 Up +2.41 +4.21%
Microsoft CAPS Rating: ****
WMT $68.34 Down -0.39 -0.57%
Wal-Mart Stores CAPS Rating: ***