UPDATE: Apple 4Q Net Up 70%; Gross Margins Disappoint

Apple Inc.'s (AAPL) fiscal fourth-quarter profit surged 70% as the company posted strong iPhone sales, but it missed expectations for gross margins and sales of its new iPad tablet computer.

The Cupertino, Calif.-based consumer-electronics giant handily surpassed analyst estimates for revenue and profit. Still, its gross margin of nearly 37% missed the average analyst expectations of 38.1%, according to a survey by Thomson Reuters.

"I'm a little surprised on the margin front," Gleacher & Co. analyst Brian Marshall said, suggesting margins may have been affected by iPad manufacturing issues. Once Apple is able to tweak production, he added, it should produce a better margin. In the meantime, the touch-screen tablet computer will still see strong sales.

While the iPad didn't top expectations, the iPhone did. The company's flagship smartphone sold 14.1 million units, 91% more than a year ago. The fourth-generation iPhone became available June 24, just two days before the prior quarter ended. Apple also reported it sold 4.2 million iPad devices, which became available in early April.

Chief Executive Steve Jobs said Apple's smartphone sales "handily" beat the 12.1 million sold by rival Research in Motion Ltd. (RIMM, RIM.T) in its most recent quarter and noted that Apple still has "a few surprises left for the remainder of this calendar year."

Shares of Apple, which reached a record high of $319 during the regular session Monday, dropped 5% in after-market trading, to $301.76. Apple's share price has surged 51% this year, a move that now makes it the second-most valuable company in the U.S. after ExxonMobil Corp. (XOM), with a market capitalization of roughly $295 billion.

The maker of computers and electronics devices, which is notorious for giving conservative guidance, said it expects fiscal first-quarter earnings of about $4.80 a share on revenue of about $23 billion. Before the results, analysts polled by Thomson Reuters had expected $5.07 and $22.4 billion, respectively.

Apple has defied the economic slowdown with its slick laptop computers and smartphones. The iPad, a multimedia, Internet-enabled slate computer, has been a bigger success than even Apple had expected. The company will start selling the device through Verizon Wireless stores later this month, as it expands distribution of the product ahead of the holidays. Verizon Wireless is owned by Verizon Communications Inc. (VZ) and Vodafone Group PLC (VOD, VOD.LN).

Meanwhile, Apple on Wednesday will unveil a new version of its computer operating software, as it moves to target corporate customers, a market that has historically eluded Apple.

For the quarter ended Sept. 25, Apple reported a profit of $4.31 billion, or $4.64 a share, up from $2.53 billion, or $2.77 a share, a year earlier. Revenue jumped 67% to $20.34 billion, with 43% coming from the U.S.

In July, the company projected earnings of about $3.44 on revenue of about $18 billion. Wall Street's latest expectations were $4.08 and $18.93 billion, respectively.

Gross margin fell to 36.9% from 41.8%, the second-straight quarter that metric dropped on year.

Apple sold 3.9 million Macintosh computers in the latest quarter, up 27% from a year earlier. The company sold 9.1 million iPod media players, falling 11%. Sales have slowed for the iPod, although the unit has likely benefited from higher average selling prices, as more customers gravitate toward the iPod touch.

-By Ian Sherr and John Kell, Dow Jones Newswires; 212-416-2480; [e-mail]