Is Steve Jobs Ailing Health hurting Apple?

Apple fell as much as 11% in late trading after its forecast for the back-to-school shopping season missed analysts' projections and questions resurfaced about chief executive Steve Jobs's health.

Fourth-quarter profit will be $US1 a share as sales climb to $US7.8 billion, Cupertino, California-based Apple said yesterday.

That compares with analysts' average estimates of $US1.24 a share in profit and $US8.3 billion in sales in a Bloomberg survey.

A slowing economy may make it harder for Apple to repeat its success in the quarter just ended, when it posted record sales of Macintosh computers and iPhones and better-than-expected demand for iPod media players.

Back-to-school promotions and new product development also will cut profit margins, Apple said.

"The stock will be in a penalty box until you start to see the new products come out,'' said Chuck Jones, who helps manage $US17 billion in assets, including Apple shares, at Atlantic Trust Private Wealth Management in San Francisco.

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Apple fell as much $US18.73 to $US147.56 in extended trading yesterday. If that drop is repeated today on the Nasdaq Stock Market, the decline would be Apple's biggest in six years. The shares have decreased 16% this year.

Analysts raised questions about Mr Jobs's health during a conference call yesterday.

An appearance by the CEO in San Francisco last month sparked concern by attendees and bloggers that he may be ill. Mr Jobs, 53, had successful surgery for a form of pancreatic cancer in August 2004.

"He is the driving force behind Apple,'' said Michael Obuchowski, a portfolio manager at New York-based Altanes Investments, which began buying Apple shares in 2006.

"Without Steve, the stock could be easily cut in half or more.''

"Steve loves Apple,'' chief financial officer Peter Oppenheimer said yesterday, responding to a question on Mr Jobs's health. "He serves as CEO at the pleasure of Apple's board. He has no plans to leave Apple. Steve's health is a private matter.''

Third-quarter net income climbed 31% to $US1.07 billion, or $US1.19 a share, a year earlier, Apple said in a statement. Sales rose 38% to $US7.46 billion in the period, which ended on June 28. That topped analysts' estimates of $US1.08 a share in profit and $US7.36 billion in revenue.

Apple sold a record 2.5 million Macs last quarter, wooing consumers and education buyers with models such as the ultra-slim Air notebook and the iMac desktop computer. The company also said it sold 11 million iPod media players and 717,000 iPhones.

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On average, analysts were projecting sales of 10.3 million iPods, 2.2 million Macs and at least 700,000 iPhones, said Gene Munster at Piper Jaffray in Minneapolis.

Apple took the US economy into account when devising its latest forecast, Mr Oppenheimer said.

The company's sales and profit projections have topped analysts' estimates for eight consecutive quarters. That prompted some investors to discount the forecast.

"I try not to read too much into that number because, typically and frankly, it's not often a good indication of where the quarter ends up,'' said Tony Ursillo, an analyst at Loomis Sayles, which owns Apple shares.

Apple, which introduced the iPhone in June 2007, ran out of inventory in May as it prepared a new version of the phone. The company opted to delay recording sales from phones sold last quarter until it released a software upgrade.

New model

That update accompanied the introduction of Apple's new iPhone 3G in 21 countries on July 11. The software, which also works with older iPhones, adds support for corporate email and third-party programs. Since the new phone debuted after the quarter ended, it also wasn't included in yesterday's results.

Apple will recognise revenue from iPhones over 24 months, an accounting approach it adopted last year because of the way it updates the device with software, Mr Oppenheimer said.

"The iPhone is a relatively small part of our total revenue and gross margin as a result of subscription accounting,'' he said.

Shoppers bought 1 million iPhones in the device's first three days, Mr Jobs said. The company's shops were mostly sold out after 10 days. And AT&T, Apple's exclusive wireless provider in the US, said new buyers may have to wait as long as three weeks for an iPhone.

"We are trying to catch the demand,'' chief operating officer Timothy Cook told analysts yesterday on the conference call. Apple plans to deliver the iPhone to 20 additional countries by August 22, he said, and a total of 70 markets later this year.

Apple said its gross margin, the percentage of sales left after deducting production costs, will be 31.4% in the fourth quarter, down from the 34.2% it reported in the third quarter.

Mr Oppenheimer said the back-to-school promotions and an unspecified "future product transition'' would weigh on the profit margin, which will average 30% in fiscal 2009.

"We have some investments in front of us that I can't discuss with you today,'' he said yesterday. "We're going to be delivering state-of-the art, new products that our competitors just aren't going to be able to match.''