Apple's earnings soar, but disappoint; stock plunges after hours

This is how Wall Street works. Apple reports that its net earnings soar an incredible 70% year over year to $4.31 billion from $2.53 billion and revenue soars 67% to $20.34 billion, yet the stock is down $19 in overnight trading. Despite shipping 14.1 million copies of the iPhone in Q4 (+91% over the prior year) and 4.2 million iPads in the three month period, lower than expected profit margins gave analysts a reason to say the numbers were a disappointment. Of all of the products Apple sells, only the iPod suffered a year over year decline with 9.1 million units sold in the quarter, down 11% from last year.

Shannon Cross, managing director at Cross Research said, "There’s a lot of hype built up into Apple’s earnings. Everything must go down at some point, I suppose. Clearly, there was pressure on the iPhone gross margins and the iPad," The Cupertino based company reported average gross margins of 36.9%, down from the year earlier's 41.8% The company expects a further slide in margins to 36% in the current quarter.

Apple CEO Steve Jobs attended the conference call, a rarity. Jobs said he attended to honor the company's record earnings. Also on his agenda was a chat to knock iPhone rivals, including Android handsets. Sales of phones using Google's open source OS outnumbered the sales of the Apple iPhone in the calendar third quarter. Jobs used the opportunity to knock Android's fragmentation because of the large number of handsets using different versions of the Android OS. The CEO said, "With iPhone, every handset works the same. We think Android is very fragmented and more fragmented every day."

While Apple's stock is currently taking a beating after hours, it did set a new all-time high earlier Monday at $319 as traders scrambled to get in to the stock before the earnings report. Unfortunately for those late buyers, it looks like the old axiom, "Buy on the rumors, sell on the news" will turn out to be appropriate in this case.

source: NYTimes