Apple Computer Inc. returned to profitability and blew past Wall Street expectations for the past quarter on the strength of its sleek Titanium notebook and other new products, the company said Wednesday.

The magnitude of Apple's turnaround spurred an extended rally in its shares in after-hours trading, pushing the stock to its highest level since it first warned of trouble more than six months ago. 

Professionals users snapped up high-end Macintosh computers and users grabbed copies of the new OS X operating system at the end of the quarter ending March 31, the company said. 

``It was a great new product quarter and there's still more to come,'' Apple Chief Executive Officer Steve Jobs said in a statement. 

Cupertino, Calif.-based Apple earned $40 million or 11 cents per diluted share excluding nonrecurring items. Wall Street had expected a penny profit, with estimates ranging from an 8-cent loss to a 7-cent profit, according to Thomson Financial/First Call. 

Apple has also ruthlessly slashed an inventory of unsold computers taking that stock to a targeted four weeks of sales ahead of schedule this quarter. 

The stock shot higher in response to the earnings, continuing an already sharp rally. In the after-hours market, Apple shares traded as high as $27, an 18 percent gain from the Nasdaq close and the highest level for the stock since September 28. 

That was the day Apple warned that its earnings for that quarter would fall short of forecast, touching off a nearly 50 percent drop in its share value. 

Lowers Sales Forecast 

Apple also cut its sales forecast for the year, blaming the economy for the change and warning of weakness spreading to Europe, but investors focused on the company's success in delivering the turnaround it had promised. 

``No need to be heroic in this environment. It is a tough environment. I think we are a stage now where you get paid for having the ability to set expectations and manage your business to those expectations,'' said Marty Shagrin, a technology analyst at Key Asset Management in Cleveland. 

``If they take down numbers but hit those numbers, that's okay.'' 

Apple's shares, beaten down last year, have easily outperformed most peers this year, but it is still seen as a value stock, with around $12 in cash per share, which reduces the pressure on the company to grow fast, said Shagrin. 

Apple, which previously had said it could make a profit on $1.4 billion in sales, reported revenues in line with that forecast at $1.43 billion, although sharply off the $1.9 billion a year ago. 

The company had posted a net loss of $247 million or 73 cents per share in the December quarter, excluding one-time items. 

Apple said it was targeting revenue of between $3.2 billion and $3.4 billion in the second half and saw quarter-on-quarter improvements in both revenues and profits in the June and September quarters. That would put full year sales at $5.6-5.8 billion, below the $6 billion Apple had forecast in January. 

The lower revenue forecast is based on Apple's view of the ''challenging economic environment,'' the company's Chief Financial Officer Fred Anderson told Reuters in an interview. 

``You know, Apple is doing extremely well compared to a lot of the companies around here like Cisco. We are not having layoffs and we're doing quite well, but I think it is prudent to be conservative,'' Anderson said. 

The important gauge of success was Apple's turnaround in the past quarter, he said. 

``When the expectation is 1 penny and you come in with 11 cents and at the same time you reduce your channel inventory by 100,000 units and you end with over $4.1 billion in cash, you've had a reasonably good quarter,'' Anderson said. 

Apple stock collapsed in October of last year, but has risen about 60 percent this year and outperformed the American Stock Exchange Technology Hardware index by about 40 percent. 

It closed up $2.39 or 11.72 percent at $22.79 in regular trading on Nasdaq, before the earnings announcement was made.