Apple holiday sales, earnings soar, but current quarter forecast less rosy

Apple had good and bad financial news Wednesday, but all that analysts seemed to want to discuss was something the company wouldn't talk much about: its new iPhone.

Buoyed by strong holiday sales of iPods and notebook computers, Apple posted record quarterly earnings and profits, blowing through Wall Street expectations.

But company officials also offered a weaker-than-expected forecast for Apple's current quarter, causing investors jitters.

The call also marked the first time that officials publicly faced questions about Apple's options problems since federal prosecutors announced an official investigation last week.

Still, excitement over the iPhone that won't hit the market until June dominated a one-hour analyst conference call following the earnings report. Interest in the iPhone generated more questions than answers on everything from how the device will do in the market to whether the battery on the device will be removable.

Not that Apple officials had much to say about it. CFO Peter Oppenheimer's response to one question -- about whether Apple expected to see demand for its iPods slacken before the iPhone launches -- was one he and Chief Operating Officer Tim Cook used repeatedly: ``We just announced the iPhone last week. It's too soon to tell.''

The focus on the iPhone was understandable. The new device is an innovative take on a cell phone and represents Apple's first entry into that market. Following the announcement of the device last week, the consumer electronics industry has talked about little else and Apple's stock has jumped more than 10 percent.

How Apple's stock will do in coming months will depend in large part on how Apple answers the outstanding questions about the device, said Jay Somaney, a hedge fund manager and founder of GlobalTechStocks.com, a financial news and opinion Web site.

``It's all about the iPhone,'' said Somaney, who owns call options on Apple's stock, meaning that he's betting it will continue to rise.

On the options front, Apple had even less to say than it did about the iPhone. During the call, Oppenheimer merely reiterated what the company has said before: its internal probe into its past grants found no misconduct by Apple's current management and the company is cooperating with federal investigators.

The company offered more about its holiday results. In the quarter ended Dec. 30, the iPod maker earned $1 billion, or $1.14 a share, on $7.12 billion in sales. That was well above results in the same period a year earlier, when Apple posted a profit of $565 million, or 65 cents a share, on sales of $5.75 billion.

Analysts polled by Thomson First Call expected the company to earn 77 cents a share on sales of $6.42 billion.

Apple sold 969,000 notebook computers in the just-completed period, up 65 percent from the same period a year earlier. Even more impressive, the company saw $1.46 billion in revenue from those sales, up 79 percent from the holiday quarter of 2005.

The company rejuvenated its notebook lineup last year when it started shipping computers with Intel processors.

The company's music business also performed well in the quarter. Apple sold 21.1 million iPods in the quarter, up 50 percent from the year-earlier period.

But Apple's forecast for its current, second quarter was below Wall Street's targets. The company expects to earn 54 cents to 56 cents a share on sales of between $4.8 billion and $4.9 billion. In contrast, analysts previously forecast that the company would earn 58 cents a share on sales of $5.22 billion in the current quarter.

At least for some investors, it appears the more established businesses within Apple matter right now, not products like the iPhone. That device isn't going to be meaningful for the company for at least a year, said Mike Rudolph, an equity analyst at Gardner Lewis Asset Management, an investment firm that doesn't own Apple.

``I'm not pooh-poohing the iPhone. It's going to be an awesome device. But let's not get ahead of ourselves,'' said Rudolph.

In late after-hours trading, Apple's shares were down 88 cents, or about 1 percent, to $94.07.