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Profit robust but Apple stock ill

EARNINGS

Weak forecasts and fears over Jobs' health erase shares' gains.

July 22, 2008|Michelle Quinn | Times Staff Writer

SAN FRANCISCO — Apple Inc.'s strongest-ever fiscal third quarter wasn't enough to keep the bears away Monday as worries about the company's financial forecast sent its stock tumbling as much as 11% in after-hours trading.

Despite seeing a huge rise in sales of its Macintosh computers recently, the Cupertino, Calif., company projected a drop in sales and profit growth in the current quarter. Apple said it was going through a "product transition" but would not elaborate.

Investors also fretted about the health of Chief Executive Steve Jobs, who looked gaunt during a public event last month. Responding to a question from an analyst, Apple Chief Financial Officer Peter Oppenheimer said Monday that Jobs would remain CEO and that his health was "private."

Apple shares rose $1.14 to $166.29 then tumbled below $150 after hours.

"It would have been nice to get a little more transparency," said Vijay Rakesh, senior research analyst at ThinkPanmure, referring to Jobs' health. "He's in the public domain. He's the CEO. People would like to know the situation with Steve Jobs. He's so pivotal."

Apple had been on a winning streak, seemingly immune to the economic doldrums. Thanks to the popularity of the Mac, Apple is on the brink of being the No. 3 computer seller in the U.S., behind Dell Inc. and Hewlett-Packard Co. Apple said it shipped 2.5 million Macintosh computers during the quarter that ended June 30, up 41% from a year earlier.

Apple continued its reign as king of the media-player market. IPod sales jumped 12% to 11 million. Customers bought 717,000 iPhones but may have held off because a new version, the iPhone 3G, was scheduled to launch July 11.

"We're proud to report the best June quarter for both revenue and earnings in Apple's history," Jobs said in a statement. "We set a new record for Mac sales, we think we have a real winner with our new iPhone 3G and we're busy finishing several more wonderful new products to launch in the coming months."

Overall, Apple reported revenue of $7.5 billion, up 38% from $5.4 billion in the same quarter last year. Profit rose 31% to $1.1 billion, or $1.19 a share, from $818 million, or 92 cents. Apple attributed the increase to sales of high-margin Macs.

But the company, which traditionally is conservative about talking about future performance, set benchmarks that were lower than analysts had expected. Apple said sales in the September quarter would be $7.8 billion and earnings $1 a share. Analysts surveyed by Thompson One had expected the company to project $8.3 billion in sales and $1.24 in earnings.

"They are always conservative, but this was more conservative than what people were expecting," said Andy Hargreaves, senior research analyst with Pacific Crest Securities.

The topic of Jobs' health came up among analysts concerned that Apple's chief executive might be sick again. In 2004, the Apple co-founder said he had pancreatic cancer but, thanks to surgery, had recovered. Speculation about his health resurfaced in June after he gave the keynote address at Apple's Worldwide Developers Conference.

At the time, an Apple spokeswoman said Jobs was recovering from a "common bug that he got two weeks ago" and was taking antibiotics. She said he "didn't want to miss" the developers conference.

A story in the New York Post on Monday quoted an unnamed Wall Street source saying some hedge fund managers had sold off Apple shares because of worries about Jobs.

"Steve loves Apple," Oppenheimer, the CFO, told analysts. "He serves as CEO at the pleasure of the board, and he has no plans to leave Apple. Steve's health is a private matter."

Analysts were not satisfied by the answer.

"To dismiss the question and not provide any information that's helpful to investors in any way is never going to help," Hargreaves said.

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michelle.quinn@latimes.com

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