Apple Stock Sinks on Outlook Worries

Shares of Apple Computer (AAPL) sank more than 5 percent Thursday, despite another quarter of robust profits attributed to sales of its iconic iPod (search) digital music player, as investors wonder whether the company will be able to follow that blockbuster with another.

"Apple is firing on all cylinders and we have some incredible new products in the pipeline for the coming year," Apple CEO Steve Jobs (search) said Wednesday as the technology company reported a sixfold jump in its fiscal second quarter net income.

But it's unclear how long Apple can keep running at breakneck pace. For months, analysts have been speculating whether Apple has another iPod-caliber product in the company's notoriously secret pipeline. There is speculation that Apple may be working on a version of the iPod that will play video files but the company declined to reveal any information.

"If I gave you any sense of that, I wouldn't be on this call next quarter," said Timothy D. Cook, Apple's executive vice president of worldwide sales and operations.

However, when an analyst pressed him for details about upcoming products, he added: "I don't think Apple could ever be without good ideas. It's embedded in our DNA."

Shares fell $2.19, or 5.3 percent, to $38.85 on the Nasdaq Stock Market (search). The stock has been trading at a 52-week range of $12.745 to $45.44.

Cupertino-based Apple reported Wednesday that it earned $290 million, or 34 cents per share in the fiscal second quarter. In the same period a year ago, the company earned $46 million, or 6 cents per share.

Revenue for the quarter was a record $3.24 billion, up nearly 70 percent from $1.91 billion in the year-ago quarter.

Analysts surveyed by Thomson Financial had projected earnings of 24 cents per share on revenue of $3.17 billion.

For the period that ended March 26, Apple had $2.25 billion in cash and sold a record 1.07 million desktop and laptop computers. Company executives also credited sales of 5.3 million iPods for more than quintupling profits.

The latest version of its Mac OS X (search) operating system, code-named "Tiger," is to go on sale April 29 for $129.

Executives are bullish about the college market for Tiger, but they remain somewhat cautious about the kindergarten through high school market because of state budget shortfalls that have curtailed public school expenditures.

"California in particular has weighted down our results," Cook said. "The good news is that higher ed continues to be extremely good for us."

The iPod has been one of the most popular electronics gadgets of the new millennium, with sales increasing 558 percent in the past year. The product has produced dozens of less expensive spinoffs but continues to dominate the market.

But some researchers say they see so many white earphones on subways and sidewalks nationwide that Apple's market might be peaking, and new versions of the iPod — such as the shuffle, introduced earlier this year with a starting price of $99 — might not maintain the sales momentum.

"Some target primary demographics for iPods appear to be relatively saturated, but the appeal of the expanded product line is also evident," analyst Mark Stahlman of Caris & Company Inc. said.

The company will announce longer-term financial forecasts at the end of the summer, and analysts are eagerly anticipating executives' guidance. Technology companies often confound Wall Street because a single smash-hit product — or an abject failure — can reverse a company's fortunes with little warning.

Earlier this year, Apple executives cautioned bullish Wall Street traders that the company couldn't continue delivering blockbuster revenue and profit growth forever. Executives warned in January that the introduction of two relatively low-priced products — the Mac mini computer and the shuffle — would make it difficult to provide financial guidance for the rest of the year.

But on Wednesday, Apple Chief Financial Officer Peter Oppenheimer increased the company's financial forecast for the fiscal third fiscal quarter. The company expects to record sales of $3.25 billion, 61 percent higher than the fiscal third quarter of 2004, and profit of 28 cents per share.

Executives said the company sold more higher-profit products than it had previously anticipated in the fiscal second quarter. The company also increased the percentage of products that it sold through its online and bricks-and-mortar retail stores.

"I couldn't be happier with our company's performance," Oppenheimer said. "We look forward to a great second half of fiscal 2005."