Apple Sinks as Jobs Tosses Barbs

NEW YORK ( TheStreet) -- Apple ( AAPL) chief Steve Jobs, in a rare earnings call appearance, discredited rivals Google ( GOOG) and Research In Motion ( RIMM) and condemned the upcoming crop of 7-inch tablets.

The Jobs' tirade served as a dramatic sideshow to a mixed financial performance that included blowout profits on stronger-than-expected iPhone sales and surprisingly thin margins on iPad sales.
Steve Jobs

Shares of the Cupertino, Calif. tech shop fell as much as 7% immediately after the release of the earnings report Monday, leading the tech sector lower Tuesday. Joining the selloff was IBM ( IBM), which beat estimates but fell after the bell. And Microsoft ( MSFT) also fell 2% early Tuesday after announcing that software chief Ray Ozzie is leaving the company.

Apple says it sold 14.1 million iPhones, 3.89 million Macs and 4.19 million iPads in the quarter. That compares with the Street targets that had Apple selling 11.8 million iPhones, 3.76 million Macs and about 4.8 million iPads.

>>Riding Apple's Coattails

The greatest concern among analysts was the gross margin, which narrowed to 36.9% from 41.8% in the year-ago period, and was thinner than the 38% analysts were looking for. Apple blamed the high cost of new products like a new iPod touch -- and presumably the iPad -- for the drag on margin.

Looking ahead, Apple says it expects to book $23 billion in revenue in the December quarter. Analysts were looking for $22.22 billion in sales for the period.

But the fireworks came midway through the earnings conference call when Jobs joined the line to hail the company's first $20 billion revenue quarter. He went on and bashed the competition in an oddly head-on fashion not commonly heard from CEOs.

Clearly perturbed by the sudden rise of Google's Android phones, which outsold iPhones in the second quarter, Jobs took a few jabs at the challengers. He started by boasting that Apple's iPhone sales surpassed RIM's BlackBerries, adding: "I don't see them catching up with us in the foreseeable future."

Jobs went on to critique the Android movement effectively, calling it messy and rife with too many challenges for developers and too many choices for users.

"We think Android is very, very fragmented and becoming more fragmented by the day. And as you know, Apple strives for the integrated model so that the user isn't forced to be the systems integrator," said Jobs, according to a Macworld transcript.

Jobs then went on to discredit the "avalanche" of tablets set to invade the market. The focus of his criticism was the inferiority of the 7-inch screen, an interesting point given that Apple had plans to introduce its own 7-inch version of the iPad.

Nearly all the upcoming tablets from outfits like Cisco ( CSCO), RIM and Samsung are 7-inch touchscreen devices. It is a size that Jobs says is too small for adequate tablet use. This crucial point comes from the developer of incredibly popular small-screen devices like the 3.5-inch iPhone and iPod touch.

Apple currently owns the tablet market with its 9.5-inch iPad that sells for between $500 and $800. The onslaught of smaller rival tablets will likely bring much lower prices and, of course, fragmentation.

Apple shares were down 2% to $311.64 in late-morning trading Tuesday as investors were banking some of their recent gains and buyers were shopping for lower entry points.

--Written by Scott Moritz in New York.

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