Apple's Green Road Paved With iPhone Takers

By Nicholas Carlson

April 26, 2007

Analysts gush over the prospects that the device will present.

Apple is in a good position to take on the challenge of reshaping its business model around the upcoming iPhone, financial analysts said after the company announced its earnings yesterday.

Apple reported a net profit of $770 million. That's 87 cents a share and 23 cents above Wall Street forecasts. Sales rose 20 percent to $5.26 billion, beating $5.17 billion estimates.

While Apple's iPod sales of 10.55 million units and current quarter guidance did not meet estimates, Mac sales of 1.52 million units sent the stock 8 percent higher in after-hours trading. Shares gained another 4.59 percent in the morning.

"With the introduction of iPhone, Apple's model will include a growing dose of subscription revenue, adding an increasing annuity base that Apple will be using as a means of future demand generation through feature introductions," according to a report from Goldman Sachs.

"While we have taken down our revenue forecasts to account for this, we have raised our corresponding earnings and, in both cases, we still see considerable room for upside."

The analyst firm's forecast comes amid Apple's board of directors' response to accusations from former CFO Fred Anderson that CEO Steve Jobs approved Anderson's actions leading to the company's options backdating scandal.

"We are not going to enter into a public debate with Fred Anderson or his lawyer," the board said in a statement. "Steve Jobs cooperated fully with Apple's independent investigation and with the government's investigation of stock option grants at Apple."

Anderson was Apple's CFO from 1996 to 2004. He resigned from Apple's board in October 2006 after the company released results from an internal investigation. The Securities and Exchange Commission charged Anderson, but yesterday it announced a settlement with Anderson after he agreed to pay a $3.5 million fine.



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