Apple Sets Profit Record, Hints at 'Major New Product'

Strong Earnings Overshadowed by 'Surprise' Coming Wednesday

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NEW YORK ( -- Apple turned in a big quarter with record iPhone and Mac sales, but all eyes were trained on the "major new product" that CEO Steve Jobs said would be unveiled later this week. That, of course, is widely believed to be a tablet computer that will be introduced with the stagecraft typical of Mr. Jobs at an event Wednesday, along with content partnerships with media companies.

That hypothesis gathered more steam this week as mobile analytics firm Flurry said it believed it had pinpointed 50 devices that "match the characteristics" of the rumored tablet being tested on Apple's Cupertino, Calif., campus over the past few months performing heavy media and gaming tasks.

Pressed by analysts on what Apple is unveiling on Wednesday, Apple Chief Operating Officer Tim Cook quipped, "I wouldn't want to take away the joy of your surprise when you see our latest creation."

Record iPhone, Mac sales
Even without the tablet, or whatever it is, Apple's business is performing well. The company crossed the $50 billion mark based on annualized revenue, a factoid Mr. Jobs called "surprising."

Revenue was $15.6 billion, up 32% from the prior year; profit came in at $3.38 billion, Apple's highest-ever sales and profit numbers and handily exceeding Wall Street estimates.

The company sold 3.36 million Macs in the quarter that ended Dec. 31, a 33% increase from the prior year, and 8.7 million iPhones, a 100% increase over the same period last year. Sales of traditional iPods were down 8% to 21 million from 22.7 million a year ago, offset by increasing sales of the high-end iPod touch.

Apple Chief Financial Officer Peter Oppenheimer gave some color on the iTunes; 3 billion apps have been downloaded in 77 countries, and the store has more than 8,000 films, 2,000 in HD.

AT&T capacity exceeded
Mr. Cook was asked about complaints regarding AT&T's wireless network from iPhone users and he said the issue is overblown, but admitted that demand for bandwidth exceeds the carrier's ability to provide it. "AT&T has acknowledged having some issues in a few cities," he said. "We have personally reviewed these plans and have very high confidence they will make significant progress toward fixing them." AT&T is the exclusive carrier for the iPhone, and its wireless network has been at the center of a heated ad battle between it and rival Verizon Wireless.

The company has 200,000 iPhones activated in China as part of its partnership with China Unicom. IPhone sales in Japan are up 400% over the prior year.

Mr. Cook addressed complaints over the approval process for iPhone apps, which has been criticized for being arbitrary and needlessly lengthy. Mr. Cook said 90% of submitted applications are approved within 14 days, a process that protects user privacy and vets content for violence or pornography. "Most rejections are actually bugs in the code itself, and this is protecting the developer and the consumer," he said.

The company made its first advertising-related acquisition in the quarter, a $270 million deal for mobile ad network Quattro, days after Google spent $750 million to snap up AdMob, but Mr. Oppenheimer said it was too early to say how big a business mobile advertising would be. "We acquired Quattro because we wanted to provide a seamless way for our developers to make money from apps, especially our free apps," he said.

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