Despite soaring profits and strong sales across Apple’s product line over the past quarter, investors pounded the company’s stock Monday because of its less-than-optimistic outlook for the rest of the year.
Apple reported third-quarter profits of 31 percent, beating Wall Street’s expectations. But a conservative forecast for the current quarter soured investors. For the fourth quarter, Apple said it expected revenue of $7.8 billion and earnings per share of $1. Analysts forecast fourth quarter earnings of $1.24 on revenue of $8.32 billion.
In after hours trading, shares of Apple dropped 17 percent to $148.90.
Apple Chief Financial Officer Peter Oppenheimer said an unspecified upcoming “product transition” will eat into the company’s profit margins.
He brushed aside a question about the health of Chief Executive Steve Jobs, which has been the subject of speculation since he appeared gaunt at Apple’s annual developers conference in June in San Francisco. Jobs, 53, successfully battled pancreatic cancer four years ago.
“Steve has no plans to leave Apple,” Oppenheimer said. “Steve’s health is a private matter.”
Nearly every quarter, Apple offers guidance that is below analysts’ estimates. In April, for instance, Apple’s forecast for the third quarter was $1 a share, while analysts expected $1.10 a share.
By the numbers, Apple had a good quarter, said Chuck Jones, a money manager at Atlantic Trust Private Wealth Management in San Francisco. He helps manage $17 billion in assets, including Apple shares.
The company’s stock, though, got “whacked” by news that unnerved investors – its $1-a-share-profit forecast, prediction of dropping gross margins and continued rumors about Jobs’ health, he said.
Oppenheimer said the product transition, which will have technological innovations “others can’t match,” will lower Apple’s gross margins from 34.8 percent in the quarter that ended June 28 to 31.5 percent for the July-through-September period. He predicted gross margins of 30 percent in 2009.
“If you are going to have new products and a new pricing strategy that will drive your margins down, it would suggest a higher growth-rate number,” Jones said.
American Technology Research analyst Shaw Wu said a new product is expensive to launch, which could account for rising costs. He added that, “given the economy, they are under some pressure to lower prices.”
Apple also was the victim of the down economic mood sweeping Wall Street, Wu said. “The overall psychology is dragging down stock prices,” he said. “They sold a decent amount of Macs and iPods. On the iPhone side, it looks like they are off to a really good start. We model four million sales for the quarter.”
Apple reported 717,000 iPhones were purchased during the quarter, though only revenue from those sold before March 6 was included in the quarterly results. For accounting purposes, some iPhone sales were not recognized in the third-quarter report. Apple decided to hold off recognizing that revenue until the current quarter.
The latest iPhone version, the faster 3G, created a global stir when it went on sale July 11, after the quarter ended. The Cupertino company said it sold one million 3G iPhones the first three days it went on sale.
Apple has been reporting that demand for the new iPhone is outstripping supplies at numerous stores.
Contact John Boudreau at jboudreau@mercurynews.com or (408) 278-3496.
