Apple Profit Rises 57 Percent; Shares Fall on Outlook (Update3)

By Connie Guglielmo


Jan. 22 (Bloomberg) -- Apple Inc. posted first-quarter profit that disappointed investors and gave a forecast that fell short of analysts' estimates, sending the shares down 11 percent and signaling an economic slowdown may curb demand.

Net income rose 57 percent to $1.58 billion, or $1.76 a share, from $1 billion, or $1.14, a year earlier, Apple said today in a statement. Sales gained 35 percent to $9.61 billion.

Earnings failed to top the most optimistic of analysts' estimates and sales of iPod media players trailed projections. Chief Executive Officer Steve Jobs's forecast also heightened concern that a slowing U.S. economy will cause consumers to cut back on purchases of Macintosh personal computers and iPhones.

``People's fear that something is going to break in the future is why the stock is down,'' said Gene Munster, an analyst at Piper Jaffray & Co. in Minneapolis, who recommends buying Apple shares. ``The concept of Apple guiding conservatively is nothing new, but the reality is in this market you need someone to stand and put a stake in the ground.''

Profit this quarter will rise to 94 cents a share on sales of $6.8 billion, Cupertino, California-based Apple said. Analysts estimated $1.11 a share in net income, and revenue of $6.98 billion, according to a Bloomberg survey.

Apple fell $17.38 to $138.26 in extended trading. The stock dropped $5.72, or 3.5 percent, to $155.64 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have declined 23 percent since reaching a record $202.96 in December.

``We give guidance we believe we have reasonable confidence in achieving,'' Chief Financial Officer Peter Oppenheimer said in an interview. ``We remain confident in our business, our products, and our strategy.''

Analysts' Estimates

Analysts anticipated profit of $1.60 a share on revenue of $9.43 billion in the quarter ended Dec. 29, according to a Bloomberg survey. Profit missed the estimate from Thomas Weisel Partners's Kevin Hunt, whose projection of $1.77 was the highest estimate on Wall Street. Some investors were looking for as much as $2, said Jane Snorek at First American Funds in Minneapolis.

``The whisper numbers were very high,'' said Snorek, who helps manage more than $70 billion in assets including Apple shares.

Apple topped its own profit forecast, as it has in every quarter for three years. Including today, the company has issued forecasts that missed analysts' estimates in eight out of nine quarters.

``It's a matter of expectations being out of whack with reality,'' Daniel Ernst, an analyst with Soleil Securities, said in an interview from New York.

iPod Sales

Apple sold 22.1 million iPods in the quarter, more than the record 21.1 million sold during the 2006 holiday season. UBS AG analyst Benjamin Reitzes in New York projected sales of 24.5 million, according to a Jan. 15 note.

In September, Jobs introduced a new version of the Nano that can play video. He also added the iPod Touch, which uses the same widescreen display built into the iPhone.

While the Touch pushed up the average selling prices of Apple's iPod line, the $299 player was shunned by some buyers in the U.S., Chief Operating Officer Timothy Cook said on a call with analysts. U.S. iPod sales in the quarter were little changed from a year ago, he said.

Apple sold a record 2.32 million Macs in the quarter, driving a 47 percent gain in sales to $3.55 billion. The company is trying to capitalize on demand for portable machines with the ultra-thin MacBook Air, which goes on sale next week.

Mac Revival

Jobs, 52, led a revival in Mac sales after incorporating faster chips from Intel Corp. in 2006. Mac shipments topped more than 1 million in each of the prior 12 quarters, and reached 2.16 million in the period ended in September.

Today's results included iPhone sales in Europe for the first time. Apple said it said sold 2.32 million iPhones in the quarter, adding to the 1.39 million it sold through September.

Apple began selling the handset in the U.K., Germany and France in November, after it went on sale in the U.S. in June. The company will begin selling the Web-surfing mobile phone in Asia this year, as well as in more countries in Europe, Cook said.

Apple still plans to sell a total 10 million iPhones in 2008, Cook said.