Apple Profit Up but Shares Decline

Apple Computer Inc. said Tuesday that its fiscal fourth-quarter profit quadrupled from a year ago -- but investors, disappointed by sales growth, punished the company after its earnings announcement, sending its stock down about 10%.

Analysts had predicted that sales of iPod digital music players would reach as much as 8 million for the quarter ended Sept. 24. Instead, Apple sold 6.5 million -- a record, but less than 5% more than it sold in the previous quarter.

The market reacted sharply. Apple shares gained $1.22 to close at $51.59 during regular trading but fell to $46.20 in after-hours trading following the earnings announcement.

Apple executives said they still couldn’t keep up with demand for the trendy gadget and confidently predicted that sales would be strong in the traditionally busy holiday quarter. They also forecast revenue for the current quarter above analyst expectations.

“We just had the best quarter in Apple’s history, and we couldn’t be happier,” Chief Financial Officer Peter Oppenheimer said in a conference call with Wall Street analysts.

The ultra-thin iPod nano, introduced a month ago, got off to a strong start, selling more than a million units in the 17 days it was on sale last quarter, Oppenheimer said.

Even analysts who had expected better sales figures weren’t predicting an end to the iPod boom anytime soon.

“Apple is human,” said Shaw Wu, an analyst with American Technology Research Inc. in San Francisco. “I think everyone was expecting another flawless quarter, and that didn’t happen.”

Apple executives said part of the reason for the lower-than-expected iPod sales was that Apple was phasing out the iPod mini, the most popular iPod to date, during the quarter to make way for the nano, which replaced it.

Since an unexpected record January-March quarter for iPods -- traditionally the weakest for computer and electronics makers -- Wall Street analysts have been bullish about Apple and continued demand for the slim music players.

But for the quarter just ended, “when you look at the seasonal patterns, they’re usually up 10% to 15%, so clearly it was a disappointment,” said Wu, who had predicted sales of 8 million iPods for the quarter.

Cupertino, Calif.-based Apple earned $430 million, or 50 cents a share, for the quarter -- up from $106 million, or 13 cents, a year ago. Excluding one-time benefits from tax items, Apple’s profit for the quarter was 38 cents a share -- a penny above the consensus of analysts surveyed by Thomson Financial.

Revenue was $3.68 billion, up 57% from the same period a year ago. Reflecting higher expectations for iPod sales, however, some analysts had predicted revenue for the quarter of as much as $3.95 billion.

For the full fiscal year, Apple earned $1.34 billion, almost five times last year’s profit of $276 million.

For the current quarter, Apple expects to earn 49 cents a share, compared with analysts’ estimate of 48 cents, on revenue of $4.7 billion, a bit ahead of analysts’ expectations of $4.5 billion.

Apple’s other products -- notably Mac desktop and laptop computers -- continue to benefit from the popularity of the iPod, fiscal fourth-quarter results show. Computer sales rose to 1.2 million from 836,000 in the same period last year.

“The halo effect is, without a doubt, real,” said Barry Jaruzelski, an analyst with management consultant Booz Allen Hamilton in New York. “The iPod is opening up a lot of people to Apple as an option.”

Such momentum cannot continue forever, Jaruzelski said.

“When you are 75% of the MP3 [digital music] market, your success is pretty much dependent on what the global appetite for MP3 players is,” Jaruzelski said. “At some point you’re probably going to have to supplement that with a new category.”

That could come as early as today. The computer maker scheduled a major announcement for this morning but has given no details. Speculation has centered on iPods that can play back video files or that have larger memory capacities than the current 60-gigabyte maximum.

The company also may introduce computers able to receive and record television programs, an area in which Apple lags behind Windows-based computers.