Apple results stellar, investors let down

Apple is suffering from the same problem as fellow new-media giant Google: Spectacular results often aren't good enough.

Apple's shares fell 3.5 percent Tuesday, then plunged an additional 11 percent in extended trading after its fiscal first-quarter earnings and forecast for the current quarter failing to live up to Wall Street's high expectations.

It didn't matter that the Silicon Valley star reported its highest-ever quarterly profit and revenue. It was a given that Macintosh computer sales jumped more than the competition, that profit margins on iPods grew and that the company still expects to sell 10 million iPhones by the end of this year.

Investors, already spooked by recession talk, focused more on Apple's conservative forecast. Apple fell $5.72 to $155.64 before the earnings release then tumbled to $138.50 after-hours.

"Nothing changed on their part," said Andy Hargreaves, an analyst with Pacific Crest Securities. "They gave a conservative guidance as they have in the past. But the sentiment in the market is so much more negative that people are latching on to that."

Investors have loved Apple's turnaround story, its booming iPod and Mac sales and its position as a dominant player in digital entertainment. Its shares reached a record closing price of $199.83 on Dec. 28, making it one of the high-tech blue chips like Google.

But the stock has been falling ever since. The same excitement that pushed the stock up has now turned into a mild panic, industry analysts said. Google has tumbled, too, to $584.35 Tuesday from its record closing price of $741.79 on Nov. 6.

"Investors are so trained right now to be fearful of the future," said Gene Munster, an analyst with Piper Jaffray. "Investors are worried something is going to slow down the high-end consumer."

Apple reported a 35 percent rise in revenue to $9.6 billion, beating analysts' prediction of $9.5 billion. Profit jumped 58 percent to $1.58 billion from $1 billion. Earnings per share of $1.72 beat analysts' expectations by a dime.

The company said it shipped 2.3 million Mac computers, 44 percent more than during the same period last year.

"The Macintosh business is on fire," said Peter Oppenheimer, Apple chief financial officer. "We remain very confident in our business and in our products and in our strategy."

But analysts were disappointed with Apple's second-quarter forecast of $6.8 billion in sales and 94 cents per share, less than the $7 billion in sales and $1.09 per share they had predicted.

Another worry: iPod shipments rose only 5 percent, to 22 million, which lagged the 24 million that some had predicted. On a call with analysts, Oppenheimer said that the company saw a dip in iPod sales in December.

"The question is whether the slow sales of the iPod in the U.S. will linger on," Caris & Co. analyst Shebly Seyrafi said. "There are issues that were disappointing."

Apple executives said that Apple sold more of its high-end iPods, such as the iPod Touch, which led to a disproportionate 17 percent increase in revenue from iPod sales, to $3.5 billion.

"That showed that people are willing to go out and buy the higher-end products," said Shannon Cross, an analyst with Cross Research, an equity research firm in Livingston, N.J. "Nothing is recession proof but maybe some things are recession resistant."

Apple's U.S. revenue rose 27 percent, compared with international revenue growth of 46 percent.

Tim Cook, Apple chief operating officer, declined to discuss the U.S. economy.

"We'll leave the economic forecasting to others," he said.