The Wall Street Journal-20080123-Apple Net Rises- but Stock Falls on Forecast
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Apple Net Rises, but Stock Falls on Forecast
Apple Inc.'s shares sank after the company issued a tepid outlook, stoking worries that sales of its gadgets may suffer from a weakening economy.
Shares sank more than 10% after the company issued its fiscal first- quarter earnings after the close of regular trading hours yesterday. Apple, of Cupertino, Calif., said record sales of Macintosh computers propelled profit 58% during the quarter. But the forecast added to the steady recent decline of its shares on worries that products like the iPod and Mac are especially vulnerable to a slowdown in consumer spending.
"What spooked the Street, frankly, is the guidance for next quarter," said Charlie Wolf, an analyst at Needham & Co. He noted that Apple has a history of providing conservative financial forecasts that it later handily exceeds. That was the case in the holiday quarter, largely because of the Mac, a business that has quietly become one of Apple's fastest growing and most lucrative, if less glamorous than newer electronics products like the iPhone and iPod.
For the quarter ending Dec. 29, Apple said revenue from the Mac business grew 47% to $3.55 billion from $2.41 billion in the year- earlier period. Unit sales totaled 2.3 million, up 44%. Profit in the quarter was helped by the October release of Leopard, a new version of the Mac operating system which carries relatively high profit margins.
Apple's iPod business, in contrast, has slowed considerably from the torrid growth of recent years, when it helped lead a turnaround in Apple's fortunes. The number of iPods Apple sold grew only 5% in the quarter to 22.1 million from a year earlier.
Apple executives said they believe new products, like the iPod touch, will help stimulate demand for the family of gadgets by expanding them from music players into mainstream wireless Internet- access devices. Apple Chief Financial Officer Peter Oppenheimer told analysts in a conference call that the iPod touch, one of the more expensive products in the iPod family, played a big role in lifting iPod revenue 17% to nearly $4 billion from $3.43 billion in the year- earlier quarter. "We don't think revenue growth like this is characteristic of a saturated market," he said.
Apple said it sold 2.3 million iPhones in the quarter, and Chief Executive Steve Jobs said last week that the company had sold a total of four million of the cellphones through Jan. 15. While some analysts have questioned whether Apple can reach its goal of selling 10 million iPhones in total by the end of this year, Apple executives reiterated their optimism for hitting that target.
Apple's prospects hinge largely on its ability to pump out innovative products. At last week's Macworld conference, Mr. Jobs introduced what he called the world's thinnest laptop computer, the MacBook Air. Apple also launched an online movie-rental service that will work with all of its electronics devices, including a revamped version of Apple TV, a device displaying online video on television sets.
Yet it remains unclear whether those products will be enough to offset signs of weakness in consumer spending, analysts say. "No company is immune to the slowing spending power of the U.S. consumer," said Toni Sacconaghi, an analyst at Bernstein & Co. "It's hard to believe Apple won't be impacted."
Following Apple's release of its results, Apple shares fell 11% to $138.53. That was on top of a $5.72 decline to $155.64 in 4 p.m. trading on the Nasdaq Stock Market.
Apple reported net income of $1.58 billion, or $1.76 a share, compared with $1 billion, or $1.14 a share, a year earlier. That topped the $1.42 a share Apple had earlier forecast for the holiday period and the $1.62 a share consensus estimate of analysts compiled by Thomson Financial. Apple reported revenue of $9.61 billion compared with $7.12 billion a year earlier, better than Apple's own forecast of $9.2 billion and the $9.47 billion Thomson Financial consensus estimate of analysts. For its current quarter ending in March, Apple told analysts to expect earnings of 94 cents a share on revenue of $6.8 billion.
