Apple profit and margins slid despite selling a solid 33.8 million iPhones in its September quarter, prompting disappointed investors to cash in some of the stock's recent strong gains.
Shares fell after the announcement, but later erased earlier losses. What's Apple stock doing now? (Click here to get the latest quote.)
During the current quarter, the company expects gross margin of 36.5 percent to 37.5 percent, which missed forecasts of 37.9 percent. It sees revenue of $55 billion to $58 billion, versus analysts' estimate of $55.70 billion.
Net income fell by 8.5 percent to $7.5 billion, or $8.26 per share, in the fourth quarter from $8.2 billion, or $8.67 per share, last year.
Revenue increased 4 percent to $37.5 billion from $35.97 billion a year ago.
Analysts had expected the tech giant to report earnings of $7.96 a share on $36.93 billion in revenue, according to a consensus estimate from Thomson Reuters.
During the fourth quarter, Apple sold 33.8 million iPhones, 14.1 million iPads. The company said its gross margin fell to 37 percent from 40 percent in the year-ago quarter.
"With Apple focusing on premium products, maintaining their pricing, ignoring calls for a low-cost iPhone in China, I think we would have expected higher gross margins," said Brian Colello, an analyst with Morningstar.
''With the higher-price phones and clear preference toward the 5S, we were all expecting more of a gross margin boost for the December quarter," he added.
When the fourth quarter ended, Apple had around $146 billion in cash and marketable securities on its balance. Shareholders activist Carl Icahn sent a letter to Apple's CEO Tim Cook last week urging the company use its free cash to buy back stocks to create more value for the shareholders.
Max Wolff, a senior analyst at ZT Wealth, said that while a buyback would likely give Apple's stock a push in the near term, the company needs a long-term strategy to take shares higher.
"It's a short-term pop in the stock for a year or so, but a long-term franchise like Apple probably requires more of a long game strategy," he said.
—CNBC with Reuters.