Apple Computer Growth Falls Short for Analysts

Apple Computer says it sold 6.5 million iPods in the last quarter and made a record net income. Despite the good news, the company's stock price actually fell in after-hours trading, because it failed to match analyst expectations.

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RENEE MONTAGNE, host:

Time now for business news. Apple Computer says it's sold six and a half million iPods in the last quarter and made a record net income. Despite the good news, many analysts and the stock market seem disappointed. NPR's Laura Sydell reports.

LAURA SYDELL reporting:

By most standards, the nano, Apple's newest and tiniest iPod, was a success last quarter. According to the company, within the first 17 days on the market, consumers purchased one million nanos. The popularity of the pencil-thin player and other iPods also comes with some good news for Apple Computer sales. Shipments rose nearly 50 percent. It's part of what analyst Richard Chu of S.G. Cowen calls the halo effect. The glow around the iPod gets people to buy more Apple products.

Mr. RICHARD CHU (S.G. Cowen): People may otherwise have not had any interest in buying Macs. But to the extent that the iPod entices them to enter, literally and metaphorically, the Apple store, they may end up buying into a larger Apple value proposition.

SYDELL: Apple saw its net income for the quarter go up nearly four times over the previous year to $430 million. Still, the news landed on Wall Street with a thud. Analysts were hoping for even greater sales and bigger profits. Apple shares actually fell in after-hours trading. But analyst Chu thinks this is a blip in Apple's upward trajectory.

Mr. CHU: Sort of a lot of these transient numbers that, after all is said and done, you know, six, nine months, we won't remember what this discussion was about.

SYDELL: Apple does face some challenges on the horizon to its dominance in the online music sphere. Early next year, its contracts with the major record labels expire. Music industry executives have expressed frustration with Apple CEO Steve Jobs' resolve to keep prices at the iTunes Store at 99 cents a song. The labels could threaten to pull out, but given that the iPod holds 75 percent of the digital music player market, Apple is in a strong position to negotiate. Microsoft and RealNetworks could become more serious competition. The two companies settled a long-running legal dispute in an antitrust case against Microsoft and have agreed to collaborate on technology initiatives. Microsoft will now promote RealNetworks' Rhapsody subscription music service. But Apple's products continue to generate excitement among consumers. Rumor sites are buzzing about a product announcement expected today. Some believe it will be a video iPod. Laura Sydell, NPR News, San Francisco.

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