Apple shares fell almost 9% in after-hours trading despite reporting record quarterly revenue of $57.6bn for the three months ending 28 December 2013.
Although revenue for the quarter was up from $54.5bn for the same period a year ago, investors were unhappy that net profit remained unchanged at $13.1bn.
Investors were also discouraged by Apple lowering its sales outlook for 2014. The firm said it expected revenue of between $42bn and $44bn for 2014, slightly less than had been forecast.
The better-than-expected earnings for the last quarter were driven by record sales of 51 million iPhones and 26 million iPads.
Despite the fall in global demand for PCs, Apple sold 4.8 million Macs, up from 4.1 million in the same period a year ago.
“We are really happy with our record iPhone and iPad sales, the strong performance of our Mac products and the continued growth of iTunes, Software and Services,” said Tim Cook, Apple’s CEO.
Apple’s revenue rose by 29% in the region that includes China, Taiwan, and Hong Kong, compared with the same period a year ago.
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Improved revenue for the region comes after Apple announced a deal with China Mobile in December, making the iPhone available on the network since 17 January.
iPhones are available on China Mobile in 16 cities, but Apple plans to expand its offering to more than 300 cities by the end of the year, according to the BBC.
Despite gains in China, Apple said sales in the rest of the Asia-Pacific region fell 9%, and that profits were hurt by currency fluctuations, particularly with the Japanese yen.
Apple also reported a sales dip in the Americas, partially due to short supply after stronger than expected sales of the more expensive iPhone 5S.
Sales of Apple’s iPod music player fell 55%, but Cook said: “I think all of us have known for some time that iPod is a declining business."
Cook was upbeat about Apple’s prospects in China and reassured investors that the company has new products in the pipeline.
But that was not enough to prevent a slump in the share price that wiped $40bn off the value of the company in after-hours trading, according to the Telegraph.
The slump in Apple’s shares is likely to agitate investors who already feel that the company should return its $159bn cash hoard to shareholders, the paper said.
Carl Icahn, the billionaire activist investor, has been lobbying for months for Apple to increase its share buyback, claiming that the company is hugely undervalued.
“[This is] one of the greatest examples of a ‘no brainer’ we have seen in five decades of successful investing,” he said last week in a seven-page letter to shareholders.