UPDATE 3-Apple profit rises but margins a letdown

(Adds analyst comment, details)

SAN FRANCISCO, April 23 (Reuters) - Apple Inc AAPL.O on Wednesday posted a 36 percent rise in quarterly profit, helped by strong sales of Macintosh computers and iPods, but its lower profit margin and cautious outlook disappointed investors.

Shares of Apple fell 1 percent after the company, known for conservative financial forecasts, gave a profit outlook for its current quarter that was below Wall Street estimates.

Chief Financial Officer Peter Oppenheimer also told Reuters he expected gross margin to be similar to the March quarter’s 32.9 percent, which was down from 35.1 percent a year ago.

Apple said it expected profit of $1.00 per share on revenue of $7.2 billion for its third quarter ending in June. Wall Street was looking for earnings per share of $1.11 on revenue of $7.17 billion, according to Reuters Estimates.

“With the stock up 41 percent since the February low, it is going to take a lot of good news to propel the stock higher,” said Robert Stimpson, portfolio manager at Oak Associates, which owns Apple shares.

The company blamed the gross margin slide on lower sales of its Leopard operating system, a price cut on the low-end iPod shuffle, and higher sales at its iTunes online music and movies store, which runs at break-even or slightly profitable.

Some analysts wondered if Apple’s conservative forecasts may turn out to be on the mark given the weak U.S. economy and component prices that may be stabilizing after months of declines.

“Last quarter they guided margins to 32 percent and people didn’t take it at face value,” said Shaw Wu, analyst with American Technology Research. “This time it sounded like it maybe wasn’t so conservative after all.”


For its second quarter ended in March, net profit rose to $1.05 billion, or $1.16 per share, from $770 million, or 87 cents per share, a year ago. Revenue grew by 43 percent to $7.51 billion.

That beat average analyst forecasts for revenue of $6.95 billion and earnings per share of $1.07, according to Reuters Estimates.

Sales of the company’s main products exceeded or were at the top end of analysts’ estimates, with Mac shipments soaring 51 percent to nearly 2.3 million units.

Mac sales were spurred by what analysts said were sexy new designs, the 'halo effect' from iPods and iPhones, and consumer frustruation with Microsoft Corp's MSFT.O rival Windows Vista operating system.

IPod unit growth of 1 percent, to 10.6 million units, flew in the face of widespread expectations of a modest fall.

“It was a strong quarter in terms of Mac shipments and iPods,” said Shannon Cross, analyst at Cross Research. “IPods, which had been a concern, were above Street expectations and that should hold back some who were speculating that iPod was saturated.”

Apple sold 1.7 million iPhones, at the high end of Wall Street estimates, with Oppenheimer saying he was confident the company would hit its goal of selling 10 million of the devices by the end of 2008.

Apple is widely expected to launch a faster iPhone model in a few months, to address a major complaint about the gadget, especially in Europe. Executives declined to discuss any future products on a conference call with analysts.

U.S. revenue was up 40 percent, while overseas revenue rose 47 percent. Oppenheimer said Apple’s 200-plus retail stores “hit the ball of out of the park” with sales up 74 percent.

“Despite the difficult macro environment, they were still able to show really strong growth,” said Wu at American Technology Research.

The company’s shares initially rose about 4 percent on the report in after-hours trading, but quickly erased the gains to trade at $160.56 versus their Nasdaq close of $162.89. (Additional reporting by Duncan Martell and Tiffany Wu in San Francisco and Calvin Mankowski in New York; Editing by Braden Reddall)