No Worries Over Apple's Health

Buoyed by strong sales of iPods and iPhones, Apple (Nasdaq: AAPL) reported solid first-quarter financial results on Wednesday.

Apple reported US$1.61 billion in earnings for the fiscal quarter ended Dec. 27, 2008, up from $1.58 billion in earnings during the same period in 2007. First-quarter sales came in at $10.1 billion, up from $9.6 billion during the first quarter of 2007.

Apple sold nearly 23 million iPod digital music players, up 3 percent over the year-ago quarter, and 4.3 million iPhones. Apple also sold 2.5 million Macintosh computers during the quarter, representing 9 percent growth over the year-ago period.

The company had $7.2 billion in cash at the end of the quarter.

Apple also provided guidance for fiscal 2009 during a conference call with analysts and reporters on Wednesday. The company said second-quarter revenue would come in between $7.6 billion and $8 billion with earnings-per-share in the range of of 90 cents to $1.

After surging 9 percent on Wednesday after the market closed, Apple's stock was up 5.7 percent to $87.57 per share in afternoon trading on Thursday.

Way Ahead of the Competition

Despite the year-long U.S. recession, Apple has thus far sustained demand for its products in the consumer market.

"We feel we're years ahead of the competition," Apple CFO Peter Oppenheimer said during a conference call Wednesday with analysts and reporters.

Oppenheimer said the company has no plans to further reduce the cost of the $199 iPhone, which once sold for as much as $599.

"It's moved from $599 to $399 to $199, so there is clearly price elasticity," Oppenheimer said. "We feel the $199 price is a compelling value and see nothing in the market that even comes close."

Oppenheimer also noted that Apple now controls about 70 percent of the digital music player market through the sale of its popular iPod device and the iTunes online music store.

"We had the highest sales ever at the iTunes store on Christmas Eve and Christmas Day," he told analysts.

Still Vulnerable to Recession

Despite the solid quarterly results, Apple is still vulnerable to the vagaries of the recession, Colin Gillis, director of research at TheStreet.com, told MacNewsWorld.

"The reality is that the consumer slowdown is going to get worse before it gets better," Gillis said, "in particular, as you see all these job layoffs at companies like Intel (Nasdaq: INTC) and Microsoft (Nasdaq: MSFT). This not only takes consumers out of the marketplace for discretionary items -- it puts fear into those who still have jobs."

Apple's Mac laptop and desktop business could also take a hit as funding for schools and other educational facilities is cut back at the state level, he suggested.

In addition, the popular iPhone now faces much stiffer competition than it did a year ago when it was first introduced. Research In Motion's (Nasdaq: RIMM) BlackBerry mobile phone and e-mail devices continue to sell in high numbers. Google's (Nasdaq: GOOG) Android phone is also gaining in popularity, and Palm (Nasdaq: PALM) is close to releasing its next-generation handheld devices, Gillis said.

The Health of Steve Jobs

Apple has been beset lately by concerns over the health of its charismatic leader, CEO Steve Jobs.

During Wednesday's call, Oppenheimer sought to quell those worries by saying that Jobs continues to have an active say in the day-to-day operations at the company, despite having officially taken a six-month medical leave of absence.

However, speculation is rampant that Apple may be the subject of an investigation by the Securities and Exchange Commission.

"There's concern about whether the company is acting with a high degree of transparency concerning the health of their CEO," Gillis said. "It's expected that the SEC is looking into this. The SEC has already been criticized for not being active enough -- I wouldn't want to be in their gun sights now."