Apple Falls From Grace

Updated from 12:45 p.m. EST

A stellar first-quarter earnings report wasn't enough to prevent a pullback in Apple (AAPL) shares on Thursday, as the company's traditional conservative guidance prompted traders to take profits on a stock that had climbed 25% in three weeks.

The stock was recently off 5.5% to $89.68.

"I thought it was a terrific quarter," says Standard & Poor's equity analyst Richard Stice. "Obviously, the iPod numbers were off the charts. I thought you could see [a number] as high as 17 million, but clearly they did much better than that."

Apple said late Wednesday that iPod shipments hit an eye-popping 21.1 million in its recent first quarter, growing 50% over the same quarter last year.

Gross margins, which surpassed estimates and hit 31.2%, also impressed the Street.

"Apple's gross margins improved a stunning 200 basis points sequentially," Bernstein's Toni Sacconaghi wrote in a Thursday note. "We estimate that iPod margins may have risen 400 to 500 basis points in the quarter to around 30%, with Mac margins up 300 basis points to 32-33%."

Accounts over which Bernstein has investment discretion own more than a 1% share of Apple common stock.

Yet even with the strong holiday performance, the forecast for the March quarter -- despite the consistent Apple strategy with conservative forecasts -- disappointed some investors. There also was precious little information given on the company conference call about recently announced flashy new products such as the iPhone and Apple TV, perhaps contributing to the selloff.

Also, Apple shares were trading at around the $80 level just three weeks ago, before momentum from the company's MacWorld product announcements had shares flirting with the $100 mark.