Mixed Bag From Apple

Updated from April 19

Apple Computer (AAPL Quote) topped the Street's second-quarter earnings expectations on Wednesday, but offered more bad news than good in its latest financial update.

The company missed analysts' revenue expectations and offered disappointing guidance for the coming third quarter. Perhaps more disturbingly, the company's iPod shipments fell far below analysts' targets, which had already been revised downward in recent weeks.

But investors seemed to see only positives in the report. In early Thursday trading, Apple's stock was up $3.52, or 5.4%, to $69.17.

"Basically, the market was looking at [it] as a glass half-full," says David Schamens, a portfolio manager at Invictus Funds, which doesn't have a position in Apple's stock, but is considering shorting it. "I think that optimism is unwarranted."

In the quarter ended April 1, Apple earned $410 million, or 47 cents a share, on $4.36 billion in sales. Earnings were up 41% and revenue 35% from the same period last year, when the company earned $290 million, or 34 cents a share, on $3.24 billion in sales.

Despite the strong growth on both the bottom and top lines, the results were mixed compared with the Street's expectations. On average, analysts polled by Thomson First Call were expecting the company to earn 43 cents a share for the quarter on $4.53 billion in sales. In its last quarterly report, Apple predicted earnings for the just-completed period of 38 cents a share on $4.3 billion in sales.

Looking forward, Apple predicted earnings of 39 cents to 43 cents a share in its third quarter on sales of $4.2 billion to $4.4 billion. Those targets fall significantly shy of the Street's prior predictions.

Analysts had previously forecast earnings of 47 cents a share for Apple's third quarter on sales of $4.73 billion The company earned $320 million, or 37 cents a share, on $3.52 billion in sales in the third quarter last year.