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Apple shares plunge despite good earnings

Apple Inc. said Tuesday its fiscal first-quarter earnings jumped about 57 percent, aided by iPod and iPhone sales, but shares plunged on an outlook that was well below expectations.
Image: Wil Gieseler talks on his Apple iPhone
The iPhone and the iPod helped boost Apple earnings beyond expectations.Paul Sakuma / AP
/ Source: The Associated Press

Apple Inc. blew past Wall Street's bullish expectations in the first quarter with a 57 percent jump in profit, but a dramatically lower forecast sent shares plunging on fears about slowing consumer spending on electronics.

The Cupertino-based company's report, released after the market closed Tuesday, reinforced investors' worries that even a hot company like Apple isn't immune from sluggishness in the U.S. economy or fears of a recession.

The company forecast profit in the second fiscal quarter of 94 cents per share, far short of the $1.09 per share that analysts were expecting. Revenue is also expected to be lower, coming in around $6.8 billion, compared with the $6.99 billion forecast by analysts.

Apple's guidance has historically been conservative, but such a divergence from Wall Street's estimate spooked investors already skittish about the economy.

Shareholders had hoped Apple's results would be a high point in a market otherwise marred by bad news. Instead, the company became emblematic of Tuesday's broader market tumble, which saw the tech-laden Nasdaq composite index fall 47.75 points to 2,292.27.

Apple shares fell $16.94, or 11 percent, to $138.51 on the disappointing forecast in after-hours trading Tuesday. The stock had already fallen $5.72, or more than 3 percent, to close at $155.64 during regular trading.

Jane Snorek, senior analyst of technology stocks for First American Funds, said worries about weakening consumer spending may have been overblown in response to Apple's results.

"I think it's more of the whisper numbers on Apple just got incredibly high," Snorek said. "(There were rumors) of $10 billion in sales and $2 per share in earnings and that they might raise their guidance. And when they kind of report in line and guide down like they're supposed to, like they should be doing, it's a big letdown."

The stock plunge was likely worsened, Snorek said, by the exodus of a large number of investors who had hoped Apple's stock would be a safe haven from the economic pressures hurting the overall stock market.

"There was a lot of money hiding in this stock," she said.

Apple chief financial officer Peter Oppenheimer said the forecast still reflects rapid growth at the company.

"Our business performed very well in the December quarter, and we remain very confident in our products and our strategy," Oppenheimer said in an interview.

Investors' concerns Tuesday about Apple's future overshadowed a robust holiday season, marked by soaring sales of Macintosh computers and continued rising sales of iPod digital music players.

Chief Executive Steve Jobs said the company notched the highest sales and earnings figures in the company's history.

Apple's net profit was $1.58 billion, or $1.76 per share, for the three months ended Dec. 29. That was 14 cents higher than the average estimate of analysts polled by Thomson Financial.

Net income during the same period a year earlier was $1 billion, or $1.14 per share.

Sales during the first quarter were $9.61 billion, also higher than the $9.47 billion Wall Street was expecting and 35 percent more than the $7.1 billion of the year-ago period.

Apple is profiting from sharply accelerating gains in the personal computer market in the United States, where the company has hovered for years in the 2 percent to 3 percent market share range. By the end of 2007, however, Apple had scooped out a share of more than 6 percent, according to market researcher Gartner Inc.

Those gains were reflected in the latest quarter with a 59 percent jump in sales of desktop Macintosh computers to $1.51 billion, and a 40 percent jump in laptop sales to $2.04 billion.

Still, iPod sales eclipsed both of those categories, underscoring Apple's transition from purely a personal computer maker and into a delivery vehicle for all forms of digital entertainment, from music to television shows to movies.

Earlier this month, the company took the plunge into online movie rentals through its iTunes service and upgraded its Apple TV device to allow consumers to download and play movies directly through the box itself, obviating the need for a personal computer for those transactions.

In the first quarter, iPod sales jumped 17 percent over last year to $3.99 billion. Total personal computer sales were $3.55 billion.

Apple executives declined to comment on economic factors such as sluggish consumer spending that may have weighed on second-quarter guidance.

"We'll leave the economic forecasting to others — we are just focusing on managing our business," Oppenheimer said on the conference call with analysts.

Instead, the company pointed to bustling Apple retail stores, which saw more than 10 million more people come through their doors in the first quarter than during the same period last year.

Apple executives also noted that second-quarter guidance, while lower than what Wall Street was expecting, still predicts a revenue jump of 29 percent over last year, which is a faster rate of growth than in previous years.

The iPhone, Apple's combination iPod-cell phone-wireless Internet browser, also remains a closely watched indicator of Apple's success. More than 2.3 million of the devices were sold during the latest quarter.

Jobs said during the Macworld Conference & Expo earlier this month that Apple has sold 4 million iPhones since they went on sale June 29 in the United States. Subsequent launches in Britain, Germany and France have boosted sales while sparking legal fights over Apple's strategy of striking exclusive deals with mobile operators in each region. Apple is also in talks to bring the device to China and Japan.

Company executives said Tuesday that Apple remains on track to sell 10 million iPhones by the end of 2008, which would give the device roughly 1 percent of the worldwide cell phone market.