Apple breaks records, but Wall Street grimaces

Apple (AAPL) couldn't beat the high expectations analysts set for the company Tuesday, reporting a quarter that disappointed even as it broke records.

It's a problem that will likely haunt Apple for a while. After years of completely blowing away its own forecasts, Apple has taught Wall Street to set a very high bar. For the company's fourth quarter, it was a bar that Apple could not reach. Shares of Apple dropped more than 6% in after-hours trading from Tuesday's $422.24 close.

Still, the company reported its highest revenue and profit ever for a fourth quarter. And sales of Macs and iPads hit an all-time record.

For the quarter ended Sept. 24, profit was $6.62 billion, or $7.05 a share. That's up from profit of $4.31 billion, or $4.64 a share, a year earlier. Analysts were expecting $7.28 a share.

On the revenue side, Apple reported an increase to $28.27 billion from $20.34 billion a year earlier. That again disappointed analysts who were expecting $29.3 billion. About 63% of that revenue came from overseas sales.

Gross margin showed improvement as well, to an astounding 40.3% from 36.9% a year earlier. And Apple beat its own forecast of $5.50 a share in profit on revenue of $25 billion.

"The company had a solid performance but given the heightened expectations, the shortfall will certainly lead to a sell-off in shares," analyst Bill Kreher of Edward Jones said, according to Reuters. "Despite the miss, we still feel Apple is the primary beneficiary of the mobility wave sweeping through the technology sector."

The last time Apple missed earnings expectations was its second quarter of 2002, The Wall Street Journal reports.

Here's how Apple's major products fared:

• iPhones: 17.07 million sold, up 21% from a year earlier

• iPads: 11.12 million sold, up 166% from a year earlier

• Macs: 4.89 million sold, up 26% from a year earlier

• iPods: 6.62 million sold, down 27% from a year earlier

The quarter finished a year in which revenue totaled $108 billion and profit came in at $26 billion.

Analysts seemed to focus on weakness in the iPhone, but in some ways that weakness was understandable as people put off buying a phone in anticipation of a new version coming out. The newest iPhone 4S went on sale this month. Some analysts expected Apple to sell 20 million iPhones in the quarter instead of the 17.7 million units sold.

Chief executive Tim Cook opened the investor conference call with a tribute to co-founder Steve Jobs, who died earlier this month. "The world has lost a visionary, a creative genius and an amazing human being," Cook said. He added that Apple is "dedicated to continuing the amazing work that he loved so much."

Cook was also asked a big question for the personal-computer industry: Is the iPad eating into sales of traditional computers? Yes, he said.

Some people are electing to buy an iPad rather than a Mac, Cook said. But a much larger number of people are buying an iPad instead of a Windows-based PC, he added.

"We're overwhelmingly coming out very, very well in that cannibalization question," he said. "With cannibalization like this, I hope it continues."

When asked about China in the call, Cook described the company's progress there was amazing. For the 2009 fiscal year, China contributed only 2% of overall revenue. For the fiscal year that just ended, however, that grew to 12%. And in the fourth quarter, it was 16%.

"It's an area of enormous opportunity," Cook said. "It has become No. 2 on our list of top revenue countries very, very quickly."

For the first quarter of its next fiscal year (which runs 14 weeks instead of 13), Apple is expecting $37 billion in revenue and $9.30 in per-share earnings. That's 32 cents more than analysts were expecting.