Thursday, April 14, 2005

Apple's second-quarter earnings topped Wall Street's estimates by 10 cents a share, and the company offered an earnings outlook that was better than expected. But investors weren't impressed, selling off the stock.

Despite the strong results, analysts on a conference call found a number of items to quibble with. For instance, the company's third-quarter guidance -- while above the Street's estimates -- implies that sales will be flat compared with the second quarter and earnings will decline, several analysts noted. Some also observed that Apple's share count ballooned 13% in the quarter, diluting earnings.

That the quarter may be flat sequentially has to do with the company's normal seasonality and with a pickup in lower-priced computers for the education market, Oppenheimer said. Also playing into the company's projected third-quarter results are recent price reductions on the company's popular iPod digital music players, he said. Factoring into the projected decline in earnings, the company expects to see an increase in operating expenses, partially due to costs associated with developing the next version of its operating system, he said.

"We don't think our revenue will continue to grow at these levels forever," he said.

On a unit basis, [iPod] sales also topped Apple's first quarter, which covers the holiday period. In that quarter, the company sold 4.6 million iPods, worth $1.2 billion. The total revenue generated likely declined, because Apple introduced a discount-priced, flash-based digital music player in the quarter.