Updated from 6:52 a.m. EDT

Prior to Tuesday afternoon's earnings announcement, most investors didn't seem worried about Apple Computer's ( AAPL) fourth-quarter results.

Maybe they should have been.

While the company topped bottom-line expectations, its sales fell short of Wall Street's estimates. More importantly, iPod sales were nowhere near the heady numbers bandied about on Wall Street.

And following the company's earnings announcement, its stock dropped like a rock. In recent after-hours trading, it was off $5.44, or 10.5%, to $46.15 on Instinet.

In the quarter ended Sept. 24, Apple earned $430 million, or 50 cents a share, on $3.69 billion in sales. That was up considerably from the year-ago period, when it earned $106 million, or 13 cents a share, on sales of $2.35 billion.

But the company's bottom line was boosted by a number of unexpected tax benefits and a lowering of the company estimated tax rate. Excluding those one-time benefits, Apple would have earned 38 cents a share, which narrowly beat Thomson First Call's analyst consensus estimate of 37 cents a share.

And on the revenue line, the company couldn't please the Street.

Analysts were expecting $3.73 billion in sales. In July, Apple officials predicted the company would earn 32 cents a share on $3.5 billion in sales in its fourth quarter.

On a conference call with analysts and investors, company officials accentuated the positive, noting that the company posted in its fourth quarter the highest earnings and revenue in its history.

"We just completed the best year in Apple's history," said CFO Peter Oppenheimer on the call. "We remain very enthusiastic about our product pipeline."

Along those lines, Oppenheimer projected in-line results for its coming first quarter. The company expects to earn 46 cents a share -- or 49 cents a share excluding stock-based compensation costs -- on $4.7 billion in sales. Wall Street has predicted that Apple will earn 48 cents a share in the current quarter on $4.53 billion in sales. For the full year, analysts are looking for earnings of $1.71 a share on sales of $16.98 billion.

In the first quarter last year, Apple earned $295 million, or 35 cents a share, on $3.49 billion in sales. For the full year, the company posted a year-ago profit of $1.34 billion, or $1.56 a share, on $13.93 billion in sales.

Despite the company's bullish forecast, investors were divided over the near-term outlook for its stock. With Apple expected to announce a new product -- possibly a video-playing iPod -- on Wednesday, one portfolio manager, who asked not to be named, plans to move from an underweight to a market weight position on Apple, saying they're "thrilled to get another opportunity to add."

"If I were a betting man, I'd bet that Steve Jobs pulls one out of the hat with the upcoming announcement," the portfolio manager said in an email. "Jobs can out-create any other tech person on the street. ... The nano or the product he introduces this week will be the gift to own this Christmas ."

Other investors were more skeptical. Apple could be helped by Wednesday's product announcement, and strong nano demand should be a boon to the company, said a second portfolio manager, who wished to remain nameless. And sell-side analysts are likely to show strong support for Apple's stock in the days ahead, he said.

But the portfolio manager noted that in the days after their recent disappointing earnings reports, shares of Lexmark ( LXM) and Dell ( DELL) both continued to trade lower.

"If you went and bought Apple at $45, the downside might be $42 or $41," said the second portfolio manager, who plans to stay neutrally weighted on Apple shares.

In the quarter, Apple shipped 6.45 million iPods. In contrast, analysts were expecting the company to ship in the neighborhood of 7 million of the digital music players, and some whisper numbers were reaching as high as 9 million units.

And the shipments would have been even lighter if not for the new iPod nano . Apple shipped more than a million units of the flash-based nano in the last 17 days of the quarter, which means that shipments of its other iPod models came in lower than the number the company posted in its third quarter.

But company officials refused to acknowledge that iPod shipments were disappointing. Regardless of the Street's predictions, iPod sales met Apple's own internal expectations, said Tim Cook, executive vice president in charge of the company's worldwide sales and operations. And Cook said the iPod numbers reflect Apple's move to wind down shipments of the iPod mini during the quarter. (Apple replaced the mini, previously its most popular iPod model, with the nano.)

The nano apparently has been a huge hit, but that could be a double-edged sword for Apple. The company ended the quarter with a "mammoth backlog" of nano orders, according to Cook. Blaming the situation on supply constraints, he added that he couldn't forecast when the company would be able to meet demand for the product, meaning that Apple could potentially miss out on sales during the all-important holiday season.

Still, company officials tried to put the situation in the best light. "The issue is a beautiful issue: Demand is staggering," Cook said on the call. "We're working as fast as possible to get as many out there as we can."

But as hot as the nano has been, sales of other iPods were likely disappointing. According to Cook, despite the backlog on nano orders, Apple ended the quarter with channel inventory within -- though toward the low end -- of its targeted range of 4 weeks to 6 weeks. Although Cook declined to comment on the inventory situation or sales of other iPod models, the overall inventory situation suggests that Apple could have surplus inventory of its top-of-the-line iPods or its low-end iPod shuffles.

With iPod shipments coming in lighter than expected, other digital music rivals and companies that supply parts for the iPod also took it on the chin in after-hours trading. In recent trading, shares of PortalPlayer ( PLAY) were off $2.11, or 7.8%, to $24.89; Sigmatel ( SGTL) shares were off 8 cents, or less than 1%, to $13.61; and SanDisk ( SNDK) shares were off $1.82, or 3.5%, to $50.10.

At least with PortalPlayer, the selloff might be a buying opportunity, said the second portfolio manager. Some 90% of PortalPlayer's sales are tied up with iPod products, and the company will likely benefit from the demand for the nano, he said.

While Apple's iPod shipments may have disappointed bulls, the company's results were nothing to scoff at. iPod shipments might not have been as high as some were hoping, but they still rose 5% from the company's third quarter and 220% year over year.

Meanwhile, the company's line of Macintosh computers posted strong sales as well, with unit shipments up 5% sequentially and 48% from the fourth quarter a year earlier.

And thanks to strong sales from its retail stores, overall revenue rose 4% sequentially from its third quarter and 48% year over year.