Apple's Revenue Falls Short, Shares Dive

Getty Images

Apple reported earnings that edged past Wall Street's estimates on Wednesday but its revenue fell slightly short of forecasts during the crucial holiday quarter.

After the earnings announcement, the company's shares fell in extended-hours trading. (Click here to get the latest quotes for Apple after the closing bell.)

For the fiscal first quarter, it posted net income of $13.07 billion, or $13.81 a diluted share, compared to $13.06 billion, or $13.87 a share, a year earlier. This is the first time in years that Apple didn't post a double-digit earnings increase.

Revenue increased 18 percent to $54.51 billion from $46.33 billion a year ago.

"The revenue number is dismal as far as what the expectations were," said Jeff Sica president and chief investment officer of SICA Wealth Management. But he added that it's an "incredible number" on its own and Apple has "fallen victim to the curse of high expectations."

Analysts had expected the company to report earnings of $13.47 a share on $54.73 billion in revenue, according to a consensus estimate from Thomson Reuters.

Apple sold 47.8 million iPhones during the period, up from 37 million a year ago; 22.9 million iPads, up from 15.4 million a year ago; 4.1 million Macs, down from 5.2 million a year ago; 12.7 million iPods, down from 15.4 million a year ago.

Tim Cook, the company's CEO, said during the earnings call that the iPhone 4 was in constraint for the entire quarter but sales remained strong. IMac supplies were "significantly constrained" and inventory was at three to four weeks, below the target of four to five weeks, he added.

Apple's report comes as investors show concern that the company's rocket-like growth may stall as consumers purchase a growing number of cheaper smartphones from competitors such as Samsung. Apple's stock has plunged more than a fourth from its all-time high in September. Last week, the stock fell below $500 for the first time in 11 months. There's speculation that the company will produce a cheaper iPhone, but that would cut into its stunning profits, which are the whole reason it's become the world's most valuable company.

DoubleLine CEO Jeffrey Gundlach predicts that the stock will continue its downward slide and hit $425 this year, probably during the current quarter, he added.

"I really think it's ultimately going through that number," Gundlach told CNBC. "I think this is really a broken company that's incredibly over-owned."

Apple's gross margins fell to 38.6 percent from 44.7 percent a year ago.

Following earnings beats from both Google and IBM on Tuesday, investors were looking to Apple's quarterly report to gauge how the company's market share fared during the crucial holiday season.

In its fiscal second quarter, Apple forecast revenue in a range of $41 to $43 billion and gross margins of between 37.5 percent and 38.5 percent. The company has routinely lowballed its forecasts in the past, but the outlook will likely prompt analysts to lower their own expectations, which were $45.38 billion, according to a consensus estimate from Thomson Reuters.

During the company's earnings call, the company stressed that its guidance is real now, although it said it used to offer what it was likely to achieve. Apple has been known for keeping analysts' expectations low and then blowing past them with its actual results.

Apple had warned that the holiday quarter's profits would be lower than Wall Street was initially expecting, because it had so many new products coming out, including the iPhone 5 and iPad Mini. New production lines are more expensive to run and yield more defective products that need to be redone or thrown out rather than sold.

The company also revealed that its cash war chest increased even more during the quarter. Apple now sits on $137 billion in cash, roughly 30 percent of its market capitalization. That's up almost 9 percentage points from last quarter and about 5 percentage points from a year ago.

Following Apple's earnings report, shares of Qualcomm, Western Digital, Broadcom,Skyworks Solutions and Isi Technology were all trading lower after hours.