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Apple (Nasdaq: AAPL) on Wednesday posted the best quarter in its history, setting new marks for both sales 
and profit, but investors sold off the company's high-flying shares after the forecast for the current quarter came in below expectations.
Apple, which last week dropped the "computer" from its name, said revenue for the quarter was US$7.1 billion, up 24 percent from the same time a year ago.
Profit was an even $1 billion, up 78 percent, or $1.14 per share. On average, analysts had been expecting 78 cents per share in profit and sales of $6.4 billion.
iPod's Continued Success
The continued success of the iPod -- driven by release of new additions to the lineup of digital music and video players -- and strong sales of Mac notebooks and desktops paced the quarter, Apple said.
CEO Steve Jobs said Apple was "incredibly pleased" with the record quarter. "We've just kicked off what is going to be a very strong new product year for Apple by launching Apple TV and the revolutionary iPhone," he added.
Once again, the iPod paced the company. Apple sold some 21.06 million units during the quarter, which also saw the release of Microsoft's (Nasdaq: MSFT) iPod rival, the long-awaited Zune.
In a conference call, chief financial officer Peter Oppenheimer said demand for the iPod was "extraordinary," with 50 percent more units shipped than the previous year.
Looking ahead, Apple said second-quarter revenue would be between $4.8 billion and $4.9 billion, well below the $5.2 billion Wall Street analysts have been predicting.
System Sales Up
Apple's outlook was disappointing enough to drive down its shares, which had hit an all-time high last week after the iPhone announcement. The stock lost more than 5 percent in morning trading Thursday, to $89.99.
Any slowdown in iPod sales would be a significant blow to Apple. In the first quarter, the 21 million units easily outpaced even the most optimistic forecasts from analysts, who were expecting Apple to sell up to 17 million units.
In the first quarter, Mac computer growth remained robust, as well. However, with 1.6 million systems shipped, Apple can benefit from a "halo effect" in which positive user experience with the iPod translates into Mac computer sales.
Fourth-quarter PC sales reports released Wednesday underscored that effect, with Gartner (NYSE: IT) reporting that Apple market share had jumped to 5.1 percent in the U.S. and 4.7 percent overall.
Faster Than Overall Market
If nothing else, Mac sales continue to grow much faster than the overall market, noted Gartner Principal Analyst Mikako Kitagawa. Total PC sales grew just 4.7 percent in the fourth quarter, whereas Mac sales were up 28 percent.
Kitagawa said the PC market is being marked by intense price pressure on vendors, from which Apple has sought to insulate itself. Its computers typically are priced higher than comparable Windows-based machines.
However, lower prices for commodities and components in its machines helped it keep profit margins high without raising prices, Apple said.
iPhone, Apple TV and More
With iPod sales accounting for almost half of Apple's first-quarter revenue, lower sales of the device could dampen results until the iPhone hits.
"The iPhone could eat into existing iPod sales, as some buyers will want a converged device rather than the dedicated devices currently available," said Gartner analyst Mike McGuire.
Apple, however has other new product initiatives in the wings that could help pick up any slack as buyers await the iPhone.
The Apple TV set-top box is due to be released soon and is already being presold on the Apple Web site.
During the conference, Apple executives said its operating system upgrade, known as Leopard, is on track to ship in the spring. An update of the iLife application suite is also in the wings and many analysts believe 2007 will see more products rolled out.
Meanwhile, Apple did not shed much new light on two issues dogging the company. Executives would say only that it "voluntarily and proactively" was keeping the U.S. Securities and Exchange Commission abreast of its internal inquiries into stock options dating practices involving Jobs and other executives.
The company also declined to comment on the lawsuit filed by Cisco (Nasdaq: CSCO), which claims that the iPhone infringes on its trademark, which it uses as a brand name for a VoIP phone sold by its Linksys subsidiary.
Despite the stock sell-off, many analysts remained upbeat about Apple's prospects. "The Mac number was respectable, profitability is at record levels, and the iPod number increased Apple's footprint," Piper Jaffray analyst Gene Munster noted in a research note.
"More iPod users result in future sales of related products, including Mac, iPhone, and Apple TV," he said.
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