Apple stock drops despite jump in Q3 profit

Investors sent Apple shares down $12.60, 7.6 percent, to $153.69 in midday trading Tuesday.

Cupertino, Calif.-based Apple said it shipped more Macs in its fiscal third quarter than ever before--2.5 million, up 41 percent from a year ago, with desktop shipments growing faster than laptops.

That's a much steeper growth rate than the overall global PC market. Total computer shipments rose about 15 percent in the three months ended June 30, according to Framingham, Mass.-based research group IDC.

"The quarter was a home run," Chief Financial Officer Peter Oppenheimer said in an interview.

Apple also said iPod unit sales jumped 12 percent, a strong showing despite last year's launch of the iPhone, which melds iPod features with those of a smart phone. Some analysts had wondered whether iPod sales would lag as consumers opted for fancier, but pricier, iPhones.

The company shipped 717,000 iPhones in the quarter and reiterated its goal to sell 10 million by the end of the fiscal year, including the cheaper, faster iPhone 3G that reached stores in 22 countries in early July.

In all, Apple earned $1.07 billion, or $1.19 per share, 11 cents ahead of Wall Street's expectations, according to a Thomson Financial survey of analysts.

Revenue jumped 38 percent to $7.46 billion, ahead of analysts' average view for $7.37 billion in sales.

Sales from Apple's retail stores, most of which are in the U.S., rose faster than revenue overall, despite economic turmoil wrought by the domestic mortgage and credit crises.

"The stock is plagued by high expectations," said Shaw Wu, an analyst for American Technology Research, in an interview. "Looking at the numbers by themselves, they are actually quite strong."

Investors might have been spooked by Apple's conservative outlook for the current fourth quarter, though the company often aims low. Apple predicted profit of $1 per share on $7.8 billion in sales, well short of Wall Street's expectations. Analysts had been expecting Apple's fourth-quarter earnings to reach $1.24 per share on $8.32 billion in sales.

Investors may also have been eyeing a drop in Apple's gross margin, which fell to 34.8 percent from 36.9 percent in the year-ago quarter. During the call, Apple noted that the margin was actually better than expected, helped in part by better commodity prices and stronger sales of higher-margin products.

Apple doesn't disclose margins for specific products, but Wu, who rates the stock a "Buy," said Macs are among the company's higher-margin items.

Looking ahead at the fourth quarter and 2009, Oppenheimer forecast even lower margins, tied in part to back-to-school promotions and in part to the launch of "state of the art new products that our competitors just aren't going to be able to match."

The CFO was peppered by follow-up questions about the mystery product from analysts during the call, but declined to give further details.

Wu said he didn't know exactly what Apple is planning, but said he expects changes to the Mac laptop lineup, perhaps aimed at student computer users.

An analyst inquired about the health of Steve Jobs, Apple's chief executive, who had a cancerous tumor removed from his pancreas in 2004.

"He has no plan to leave Apple," Oppenheimer responded. "Steve's health is a private matter."