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Macs down, profits steady

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Apple has reported net income of $46m on revenue of $1.9bn for the past quarter. That's slightly down from the traditionally strong Christmas quarter, but 29 per cent up from the corresponding quarter last year, when the professional market was awaiting the launch of the G5 PowerMacs.

The iPod continued its festive surge, with 807,000 sold compared to 733,000 in the holiday season quarter. Apple sold fewer Macs: 749,000 compared to 829,000 in the previous quarter, which executives attributed to reduced inventory in the channel, and a delay in shipping the Xserve G5 until the final week of the quarter, due to IBM's failure to deliver the processors. iBook sales were strong, topping 200,000 again, and Apple shifted a healthy 400,000 copies of the iLife suite.

Apple had already said that the worldwide launch of the iPod mini would be delayed until July because of supply constraints. Margins are in line with Apple's personal computers, around 27 per cent, although Apple expects this to fall to 20 per cent with the mini and the introduction of the HP licensing deal. Asked if Apple saw cannibalization of the traditional iPod by the smaller-capacity mini, executives said that on the basis of the limited numbers so far it "was very minimal" but "with a different supply we might have a different view."

Ominously Apple declined to use the conference call to trumpet its iTunes Music Store, which has fallen far short of the stated goal of 100 million music downloads in its first year of operation. Even more ominously, Apple acknowledged that album prices were increasing, with some now topping $9.99. Executives blamed the record labels for rising prices. The biggest labels are reportedly discussing increasing the price of music downloads from 99 cents per song to a figure as high as $2.99 per song.

(See Labels seek end to 99c music per song download).

Apple's controversial retail stores - the subject of a lawsuit from established Apple retailers - netted $266m in the quarter, only 7m less than Christmas quarter, bringing in $5m in net income. A class action suit by Bay Area dealers including Macadam and Elite has unearthed a mountain of evidence that shows Apple was supplying its own retail stores at a preferential rate, contradicting previous statements by the company and in contravention of both the Robinson-Patman discriminatory pricing Act, and Apple's own ethics policy. (Think Secret has published some of the evidence here).

Only one financial analyst pursued this, and executives declined to answer.

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