Apple shares drop after missed forecast

SAN FRANCISCO (Reuters) - Apple Inc (AAPL.O) on Tuesday forecast a quarterly profit below analysts' expectations and posted disappointing holiday-season iPod shipments, sending its shares down 11 percent in after hours trade on concern consumers were cutting spending.

Stock market futures and shares of technology giants including Google Inc (GOOG.O) and Microsoft Corp (MSFT.O) fell in Apple's wake, after a frenzied day that saw the Dow Jones industrial average fall 1 percent and Nasdaq drop 2 percent amid mounting fears for the U.S. economy.

"As Apple goes, so goes the Nasdaq," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey, who called it a bellwether for both the technology and retail industries.

Apple's holiday-quarter shipments of iPod music and video players were 22.1 million units, up about 5 percent from a year earlier and shy of forecasts from three analysts tracked by Reuters ranging from 22.4 million to 25 million.

Sales of the iPhone hit 2.3 million, in line with most Wall Street estimates.

"Investors are nervous about strength in consumer and even though Mac shipments were quite strong, iPods were light versus expectations," said Shannon Cross of Cross Research.

Apple said iPod revenue rose 17 percent from a year earlier -- the strongest growth in a year, according to executives -- as the debut of a $400 model with a touch screen and wireless Internet capability lifted average selling prices.

The company also shipped 2.3 million Mac computers in the quarter, up 44 percent from a year earlier.

But that growth could slow if the U.S. economy slides into recession, said Tim Bajarin, head of Creative Strategies, a consultancy.

"Consumers right now are wary of the economy. They are really reluctant to pull the financial trigger on any purchases outside of their normal daily expenses," Bajarin said. "Unless a computer is mission-critical, consumers will most likely delay purchases."

However, some analysts say Apple may be able to weather an economic downturn better than its peers because devices like the iPod and iPhone are so desirable.

"Considering their product offerings, I don't think Apple is damaged in any way. Their products are still selling like gangbusters and even with a slowdown in consumer spending, they will see robust growth," said Ted Parrish, co-manager of the Henssler Equity Fund that holds Apple shares.

Net profit for the first quarter ended December 29 was $1.58 billion, or $1.76 per share, compared with $1 billion, or $1.14 per share, a year earlier. Revenue was $9.6 billion, up 35 percent from $7.12 billion a year earlier.

That handily topped the average Wall Street profit target of $1.61 while revenue was about $100 million above the average forecast, according to Reuters Estimates.

But the outlook fell short of expectations.

Apple, known for its conservative financial forecasts, said earnings for the second quarter would be 94 cents per share, versus the average analyst target of $1.08, and revenue of $6.8 billion, versus Wall Street's $7.0 billion target.

Apple also said it expected gross profit margin to fall to 32 percent from 34.7 percent the previous quarter, due mainly to slower software sales and lower overall revenue.

Shares of Apple fell to $137 in after-hours trading from a close of $155.64 on Nasdaq. Shares of Blackberry maker Research in Motion (RIMM.O)(RIM.TO) fell 5.5 percent to $85.15 in extended trading. Google fell 2.3 percent to $571.00 and Microsoft fell 1.1 percent to $31.64.

(Additional reporting by Duncan Martell and Eric Auchard in San Francisco and Chris Sanders in New York; Editing by Braden Reddall, Leslie Gevirtz)