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Apple earnings disappoint, stock gets crushed

In a rare miss, Apple's fiscal fourth-quarter earnings came in below analysts' expectations, triggering a sharp sell-off in after-hours trading.

The company earned $7.05 a share, on revenue of $28.3 billion. The consensus expectation was that Apple would make $7.22 a share on $29.5 billion in sales. Although Apple registered a 54% gain in net income - which for the run-of-the-mill company would quality as stellar with a capital "S" - this company is always a special case given its prominence as an iconic brand around the world.

Apple's stock closed Tuesday at $422.24. In after hours trading, shocked investors drove the stock down about 6% upon hearing the news. The company is now such a bellwether that the stock's travails also pulled down S&P futures sharply.

The earnings report was the first for Apple since company co-founder Steve Jobs passed away.

In a statement, newly-appointed CEO Tim Cook said he was "thrilled" with the results.

"Customer response to iPhone 4S has been fantastic, we have strong momentum going into the holiday season, and we remain really enthusiastic about our product pipeline," he said.

The session with analysts was also notable as it marked Cook's first call as Apple's permanent CEO.

Apple earnings release

Was this a case of Wall Street expectations getting out ahead of reality? If so, their irrational exuberance is partly due to being schooled to expect more out of Apple. Over the years, the company has often downplayed expectations for the next quarter, only to beat the numbers by wide margins.

On the surface, at least, the stats looked strong: In the quarter, Apple sold:

  • 17.07 million iPhones, up 21 percent over the year-ago quarter
  • 11.12 million iPads, a 166 percent unit increase
  • 4.89 million Macs, a 26 percent unit increase over the year-ago quarter

The only big negative was in its iPod business. Apple sold 6.62 million iPods, a 27 percent unit decline from the year-ago quarter. Also, Wall Street was looking for a range of 18 million to 20 million iPhones in the quarter. The shortfall may have been related to customers reacting to rumors of an iPhone 5 (which turned out to be the iPhone 4S). Indeed, that meme was quickly making the rounds of the transom as the market attempted to put the shock in context. Michael Walker, a portfolio manager with WP Stewart, told the Dow Jones news service that "there's no question this was a transition quarter ahead of the 4S."

Another point that may be getting lost in the noise of the immediate aftermath of the day's news: Apple only this month introduced the iPhone 4S while the iPhone 4 debuted last year in June.

During its conference call following the earnings release, Apple indeed pointed to product speculation about an upcoming iPhone as having had an impact. Meanwhile, the iPhone 4S, which is only shipping in seven countries, will ship in 22 more countries by the end of October, according to Apple.

In a testament to the keen interest in everything Apple, the occasion of the company's earnings release was sufficient to cause The New York Times, the Wall Street Journal, Britain's Telegraph and a host of tech-related publications to cover the conference call with live blogs.

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