Sales of more than 21 million iPods in the final three months of 2006 contributed to record quarterly profits at Apple of $1 billion (€772 million) in the period, on revenues of $7.1 billion.

The computer maker, which now has an eye on the mobile phone and home entertainment markets, also managed to increase its gross profit margins from 27.2 per cent a year ago to 31.2 per cent for Apple's financial first quarter, which ended on December 30th.

Apple also performed well in its traditional core business of selling Macintosh computers. The Californian company shipped 1.6 million PCs, up 28 per cent from a year ago, but it was the massive rise in iPod sales which drove profits. It shipped just over 21 million of the digital music players in the three-month period, a 50 per cent increase on the same period in 2005.

It is also a significant increase on the previous quarter when Apple shipped 8.7 million iPods and suggests that Apple managed to gets its supply chain in order for the busy Christmas shopping period. In previous years consumer demand for the iPod had outstripped supply, although consumers and retailers in Ireland both reported a lack of iPods in the run up to Christmas.

While Mac computers have a significantly higher unit price than even the most expensive iPod, the music players now account for almost one-half of the company's revenues.

Apple generated over $1.75 billion in cash during the last quarter and now has $11.9 billion in cash, which should fund a significant marketing campaign for new products.

Despite the record first quarter, Apple's forecasts were enough to send shares on Nasdaq down by 1 per cent yesterday. Apple itself suffered its largest one-day drop in almost a year, with a 5.9 per cent fall in the share price.