Apple Q4 earnings beat guidance, miss the Street’s lowered expectations

October 25, 2012, 8:58 PM UTC

FORTUNE — Apple’s (AAPL) reported mixed results Thursday. Although its sales of nearly $36 billion beat both its guidance and Wall Street’s estimates, its earnings came up slightly short.

At $8.67 per share, they were higher than the company’s usual conservative guidance of $7.05. But they were less than the $8.75 Wall Street was expecting — and that number had been reduced after analysts learned Tuesday that iPad sales for the quarter were coming up light.

Those iPad sales — 14 million — were even lower than analysts’ lowered expectations. iPhone sales, by contrast, were a bit higher.

Apple shares, already down more than $7 (1.18%) for the day, immediately fell another $8+ in after-hours trading. It recovered somewhat after the conference call with analysts.

The disappointing news was tempered somewhat by projections for the Christmas quarter that Apple described as bullish but which were lower than expected: sales of $52 billion and earnings (due to reduced gross margins) of $11.75 per share.

“We’re very proud to end a fantastic fiscal year with record September quarter results,” said CEO Tim Cook. “We’re entering this holiday season with the best iPhone, iPad, Mac and iPod products ever, and we remain very confident in our new product pipeline.”

The numbers:

Sales: $ 35.966 billion, up 27.2% year over year
Net profit: 
$8.2 billion, up 24.3%
EPS: $8.67, up 23%
iPhone:  26.91 million units, up 57.6%
iPad:  14.036 million units, up 26.2%
Mac:  4.923 million units, up 0.7% vs. -8% for the PC industry
iPod: 5.344 million units, down 19.3%; 60% iPod touch
Apple TV: 1.3 million units, up over 100%
iTunes store: $2 billion in sales
Apple Stores: $4.2B revenue, up 18%
Total stores: 390, 140 outside the U.S.
Dividend declared: $2.65 per share, payable Nov. 15
Revenue guidance: $52 billion
EPS guidance: $11.75
Gross margin guidance: 36%
Cash and marketable securities: $121.25 billion

Notes from the conference call below the fold.

Katy Huberty points out that if Apple only makes $11.75 per share this quarter it will be the first year over year decline in the Christmas quarter. COO Peter Oppenheimer’s answer begins by pointing out that Q1 2012 had one more week that Q1 2013. Apple has also lowered the prices of its older phones. And he also said that the margin on the iPad mini — whose $329 price many complained was too high — was actually lower than usual for Apple.

Tim Cook adds his two cents: Apple dedicated to making “the very best customers in the world.”

“We’re managing the company for the long run.”

Still planning to roll out iPhone 5 to 100 countries before the end of the year. Complicated by the fact that Apple has released more new products in the past six weeks than ever before.

In terms of China, revenue was $5.7 billion (I missed the percentage increase), Mac was up 44%, iPad was up 45%, iPhone up 38%. Total revenue for the year in greater China was $23.8 billion, up 78%.

Cook calls Microsoft’s (MSFT) Surface a “compromised” product. Compares it to a car that floats.

Asked about older iPads, Cook says “we don’t have any old products. We only have new products.”

“We’ve learned over the years not to worry about cannibalization of our own products.”

The big opportunity is the 90 million PCs bought every year. “I think those people would be better off buying an iPad.”

Apple TV. For 1.3 million, up over 100%. Sold more than 5 million for the fiscal year. Sold 2.8 million the previous year. Revenue still quite small.

“It still has the hobby label, but it’s a beloved hobby.”

Why did iPad sales decelerate Q to Q? 17 million to 14 million. The June quarter had 1.2 million increase in channel inventory. We had expected it to decline, is that there’s usually a seasonal reduction in the Sept. quarter because K-12 buys in the June quarter. That was exaggerated somewhat by a product announced in March that sell in June. Also people delay purchases when there are rumors of a new product.

Year over year, the sell through actually grew 44%. “The underlying sell-though was extremely strong.” With the 4th gen iPad and the iPad mini…

“We think its going to be an incredible holiday season.”

Asked about pricing philosophy of $329 iPad mini, Oppenheimer rattles off the “profound” difference in quality between the mini and the competition. Basically, it’s more expensive to build. Gross margin “significantly below” corporate average. Hoping to become more efficient.

Cook: One of the things we try to do is create a product customers will love months and years after they purchase it. Apple will not make a product that someone may feel good about when they purchase it, but when they bring it home never use it. (That’s a paraphrase.)

Cook: iMac will be in short supply for the whole quarter. For the others, we’re extremely bullish on the demand, as you can tell from the guidance.

Oppenheimer: Foreign exchange expenses were higher than expected in Q4. In Q1 they should be lower.

iPhone ASPs relatively flat year on year. iPad ASPs down year over year because of price reduction on iPad2 and foreign exchange.

Second quarter that iPhone activations growing faster than international. Why? Cook: says it’s because most of the iPhone 5 launch was in the U.S.

Cook: Launch in mainland China WILL occur in the December quarter. (That clears that up.)

“Demand is VERY robust.” (for the iPhone, that is.)

Oppenheimer: To explain why Apple is projecting gross margins so much lower than last quarter, he estimates that over 80% of the revenue for the December quarter will come from new products.

And that’s a wrap.