Apples for sale

Apple earnings climb 58%, but outlook disappoints.

Apple Inc. on Tuesday reported a first-quarter profit that rose 58% from a year ago, but the company's shares tumbled in after-hours trading as the consumer-electronics maker gave an earnings outlook that fell short of Wall Street analysts' forecasts.

Usually, on days when Apple Inc. (AAPL) reports earnings, giddy investors have a chuckle about the company's famously conservative forecasts and proceed to load up on the stock—confident that Apple's closely guarded pipeline of new products will keep sales and profits on the rise. But in a reflection of the gloomy mood on Wall Street over the prospect of a recession, investors found little to laugh about in Apple's latest forecast.

Apple typically gives conservative forecasts, but the latest one delivered by Chief Financial Officer Peter Oppenheimer proved particularly disappointing in light of Tuesday's trading session, which saw nearly every major tech stock lose ground in a broad market decline fueled by fears of recession.

Oppenheimer said that Apple expects to earn 94 cents a share on $6.8 billion in sales for its second quarter. The forecast fell below analysts' consensus estimates for earnings of $1.09 a share on revenue of $6.99 billion.

For its fiscal first-quarter, Apple earned $1.58 billion, or $1.76 a share, on revenue of $9.6 billion. During the same period a year ago, Apple earned $1 billion, or $1.14 a share, on $7.12 billion in sales. In a statement, Apple Chief Executive Steve Jobs said that the results showed the company posting its highest quarterly earnings and sales in history.

The company attributed the quarter's performance to a strong holiday season, as Apple said that it sold 22 million iPods and 2.3 million Macintosh PCs during the quarter. Also, about 2.3 million iPhones were sold during the quarter.

Speaking on a conference call to discuss the results, Oppenheimer said that he remains "very confident in our product pipeline and [looking] forward to the rest of 2008."

As of Wednesday noon Apple shares continue their fall further dropping about 20% at 126$.


Analysts look at the bright side and suggest investors use the events as a buying opportunity, in a research note to clients Wednesday morning, analyst Gene Munster said he believes investors are overreacting to the fiscal report and outlook, even given the fact that iPod sales are indeed decelerating.

"Over the last 7 quarters, on average, Apple has guided earnings-per-share (EPS) 9 percent below Street expectations," he wrote. "While the March quarter EPS guidance is more conservative than average, Apple's revenue guidance for the quarter is [only] 2 percent below Street expectations, vs. an average of 4 percent below expectations over the last 7 quarters."

"Mac market share continues to rise, and growth rates are accelerating," Munster advised clients. "Using IDC estimates, Mac market share in December 07 was 3.0 percent, or 50 basis points higher than in December 06, [which represents] the largest gain in Mac market share since we began tracking IDC data seven quarters ago."

Furthermore, the Piper Jaffray analyst noted that Tuesday's approximate 15 percent drop in Apple's stock price means shares are now trading at just 25 times the company's expected per-share earnings over the next twelve months, down from a two-year average of 31 times and a two-year low of 24 times.