Apple Sales Rise, Shares Dip

Updated from 9:41 a.m. EST

Led by strong sales to consumers, Apple Computer beat Wall Street's earnings expectations for the December quarter and reported its best sales in four years, the computer maker reported after the close on Wednesday.

Nonetheless, a small slip in margins due to some quality problems, and a somewhat slower-than-expected transition to the fast newG5 Macs, apparently disappointed some investors. As a result shares of Apple dropped Thursday, along with other technology companies.

As of 11:00 a.m. EST, Apple stock was off $1.24, or 5.1%, to $22.96.

Wall Street's reaction to the report was well summed up by the headline on a note by Morgan Stanley analyst Rebecca Runkle. "Apple: Firing on most cylinders."

For the fiscal first quarter of 2004, the Cupertino, Calif., company earned a net profit of $63 million, or 17 cents a share, compared with a loss of $8 million, or 2 cents a share, a year earlier. The quarter's results included an after-tax investment gain of $3 million, which increased earnings per diluted share by a penny. Analysts polled by Thomson First Call were expecting a profit of 15 cents.

Sales jumped 36% year over to $2.006 billion, a bit better than the $1.932 billion expected by Wall Street.

Gross margins were 26.7%, down from 27.6% in the year-ago quarter, and 40 basis points below prior guidance.

Apple, which has had product-quality problems in the past, took a larger warranty reserve to cover problems with the screens of some notebooks. The problem with the displays has been cured and should not appear in newly manufactured machines, the company said.

Looking ahead, Apple expects to earn between 8 cents and 10cents a share on revenue of $1.8 billion for its current, second quarter. Analysts expected earnings of 7 cents a share on sales of $1.7billion.

With Apple constantly fighting to increase share against so-called Wintel machines, keeping the technology edge is a key, so as lower-than-expected rollout of the robust PowerMac took a bit of the luster off the report.