Apple, caught between the promise of its new iPhone and the peril of a stock options investigation, reported record earnings Wednesday for the first quarter of its 2007 fiscal year.

Apple posted net income of $1 billion (£507m), or $1.14 per diluted share, on revenue of $7.1 billion, for the quarter ended 31 December 2006.

These results compare to net income of $565m, or $0.65 per diluted share, on revenue of $5.7 billion in the during the like-for-like period during the previous year.

The company, which dropped the name "computer" from its name to reflect its broadening array of consumer electronics products, such as its popular iPod music player, reported a gross margin of 31.2%, up from 27.2% from a year ago.

"These are stellar results," said Apple chief financial officer Peter Oppenheimer, told stock analysts.

Apple sold 1.6 million of its Macintosh computers and more than 21 million iPods in the quarter, which covered the holiday shopping season – up 28% and 50%, respectively, from the same quarter a year ago, Oppenheimer said.

Apple released its latest financial results one week after chief executive Steve Jobs unveiled the new iPhone at the company's annual Macworld Conference & Expo in San Francisco. Although well received by Mac fans at the convention, some sceptics wonder whether its high price will attract many buyers (to be confirmed around $500, or £279, when it first goes on sale in the US in June) plus subscription costs.

Apple was promptly sued in US federal court by Cisco, which claims the trademark to the name iPhone.

Oppenheimer characterised the suit as "silly" and Cisco's trademark claim as "tenuous at best".

Apple is also facing other legal uncertainty, as the US Attorney's Office for the Northern District of California confirmed it is investigating how Apple accounted for backdated stock options.

Oppenheimer would tell analysts that Apple is "proactively and voluntarily providing information to [investigators] of our own findings and answering their questions".

In a 29 December 2006, filing with the US Securities & Exchange Commission (SEC), Apple disclosed the results of a board internal investigation into backdating. It found that an October 2001 board meeting at which 7.5 million options for Jobs were granted never actually took place and that the options weren't officially granted until December of that year. Backdating the options grant date to October, though, gave Jobs an instant paper profit of about $20m because Apple stock was selling for less in October than it was in December.

Apple said it would restate $84m in earnings from 2006 to account for more than 6,400 backdated stock option grants made between 1997 and 2002.