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Apple Profit Nearly Doubles But Forecast Well Below Expectations

By Reuters
Published | Updated

SAN FRANCISCO – Apple Computer Inc.'s (AAPL) first quarter profit nearly doubled, but the company forecast its second quarter sales would be well below expectations, sending its shares down.

Apple shares fell about 3 percent in volatile after-hours trading following the results.

Apple's chief financial officer also said the company's then-pending shift to Intel Corp. (INTC) microchips for its Mac computers caused it to lose some holiday-quarter sales.

Apple shares, which had gained almost 15 percent since the end of 2005 as the market reacted to booming holiday sales of its market-leading iPods, briefly gave back about half of those gains late Wednesday in reaction to the company's disappointing current-quarter forecast.

"Their guidance being overly conservative for next quarter, that's what's causing the most chaos in the shares today," said Jim Grossman, portfolio manager at the Thrivent Technology Fund. "People want a little more explanation of why they're giving such conservative guidance."

For the current quarter, Apple forecast earnings per share before items of 42 cents on revenue of $4.3 billion. Analysts had expected the company to earn a profit before items of 51 cents per share, on average, on revenue of $4.83 billion.

Apple, which also makes Macintosh computers, said net income for its first fiscal quarter ended in December rose to $565 million, or 65 cents per share, from $295 million, or 35 cents per share, on a split-adjusted basis. Revenue rose 64 percent to $5.75 billion from $3.49 billion.

Apple Chief Financial Officer Peter Oppenheimer said the company had seen "a bit of a pause" in its sales of Mac computers ahead of its widely watched shift to Intel microprocessors.

Apple said again that it had sold 14 million iPods in the holiday quarter, a figure Chief Executive Steve Jobs disclosed last week at the Macworld conference. The company also sold more than 1.25 million Mac computers -- fewer than some analysts expected.

One analyst said that Apple's runaway success with the iPod had focused investor attention on the performance of the Mac product line.

"Historically the Mac has been the primary revenue generator," said Nittin Gupta, an analyst with the Yankee Group. "At this rate of growth, the Mac is not going to be their primary revenue driver. If they become too dependent on iPods and digital audio players, that's a risk over the long term. It's going to be hard to maintain those iPod shipment numbers."

Apple shares trade at 36.5 times projected earnings per share before items of $2.26 for fiscal 2006 ending in September, compared with a multiple of 51 times Google's 2006 estimated profit per share.

Apple shares more than doubled in 2005, after tripling in 2004. In the past 12 months, its shares are up more than 140 percent, compared with a more than 130 percent increase in shares of Google Inc..

Apple has sold some 42 million iPods since their introduction in October 2001 and the company has about 75 percent of the U.S. market for digital music players.

Apple shares fell $2.22, or 2.6 percent, to close at $82.49 on Nasdaq, on a day when tech stocks were dragged down by disappointing results from Yahoo and Intel Tuesday. In extended trading on Inet, the stock fell below $78 before rebounding. The stock recovered to $79.71 after-hours, a drop of 3 percent from the Nasdaq close.