Apple Earnings: Mac Up, iPod Levels Off

Apple reported its latest quarterly earnings Tuesday, again beating its own conservative estimates. But the Mac and iPod maker frightened investors with its lower-than-expected guidance for the coming quarter, sending shares diving 11 percent. Another shocker: Sales of the company's iPod appear to have leveled off.

For the final calendar quarter of 2007, Apple reported a net profit of $1.58 billion on sales of $9.6 billion, a sharp increase over its results from the same quarter a year earlier. Most notably, international sales accounted for 45 percent of the quarter's revenues.

The surprise winner of the quarter, again, was the Macintosh computer line, which saw record sales of 2.3 million units in the waning days of 2007 and 7.8 million units for all of 2007. The numbers were good enough to catapult the Mac to 3.1 percent worldwide market share in Q4 2007, and 2.9 percent for all of 2007. "The Mac business is on fire," Apple CFO Peter Oppenheimer said.

Apple's iPhone smart phone also sold well: The company sold 2.3 million iPhones in the quarter, and about 4 million overall since the device was first offered in late June 2007. Apple says it is on target to sell 10 million iPhones in the first year, though analysts now doubt that figure is obtainable.

The iPod saw some troubling signs of slowdown. Apple sold 22 million iPods in the quarter, up just 5 percent year over year. On the bright side, consumers are buying the company's more expensive iPods, with models such as the iPod touch driving sales. So iPod revenues were up 17 percent despite the modest unit number improvement.

What has investors really worried is the future. While Apple says that the winter quarter is typically slower due to natural sales fluctuations, analysts are concerned that Apple's high-priced gadgets will suffer in the expected recession. And the company did little to bolster its key products during its recent MacWorld tradeshow. Apple's one major Mac-related announcement was a high-end niche laptop, the MacBook Air, which sells for $2000-$3000. That's exactly the type of product consumers will avoid if the economy tanks, analysts say.

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