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Obviously Wall Street is ambivalent about record Apple profits

Apple watchers, that breed of investors and tech geeks who anticipate every new iProduct iteration with bated breath, were even more excited than usual about the company’s earnings call on Monday. A lot rode on the outcome: Angst about Apple’s potential decline has grown since game-changing new products like a television or a smart watch failed to appear, iPad sales have flattened, and rival Samsung took the lead in phones last quarter.

The Cupertino tech giant did a little bit to allay their fears. It brought in record revenue of $37.47 billion, beating expectations, and sold 33.8 million iPhones — up 26 percent year over year. But its profits were down for the third straight quarter — gross margins fell to 37 percent from 40 percent a year earlier, disappointing investors.

Part of the problem in the earnings report may be the fact it didn't capture some of Apple’s pipeline of new toys. While demand for the iPhone 5S was strong, supply backlogs meant that consumers couldn’t buy them as quickly as they wanted. And the newly-announced products — a lighter full-sized iPad, an iPad mini with a sharper display, and the most powerful desktop ever — won’t go on sale for weeks. Typically, profits improve as manufacturing costs decline with higher volumes, and the full suite of products will be available for the blockbuster holiday season.

The other problem, though, is that Wall Street’s expectations for Apple are incredibly high. The company missed expectations for iPad sales by 400,000 units, for example, despite the fact that sales were steady at 14.1 million in advance of the release of two new models, which usually depress sales of the old ones. And Apple often notes defensively that Wall Street wouldn’t expect quarterly miracles from any other company.

“All of these are products that only Apple could have delivered, and most companies would be happy with just one of them,” said Apple chief executive Tim Cook on the earnings call, after having run through the suite of updated gadgets.

Apple’s shares dove sharply in after hours trading as soon as the earnings were released, but they rebounded to less than 1 percent down from the close. The stock hovered below $528 which, for perspective, is up from a low of $390 in April but down from its all-time high of $700 last September.

To offset a mixed report, Apple executives focused on how much consumers love their products, citing one survey that puts satisfaction rates for the iPhone at 93 percent, and another that shows people use their iPhones 53 percent more than Android users. App developers have made $13 billion through the iTunes store, over half of that over the past year.

Apple is using a bit of its $146.8 billion cash stockpile to keep them happy, coming out with its first free upgrade to its operating system for Macs. That’s unlikely to satisfy activist investor Carl Icahn, who last week embarked on a campaign to get Apple to use it instead to buy back stock, which would bolster the price for shareholders.