The Cupertino, California-based computer maker said strong sales of its iMac computers and a new streamlined business focus resulted in a fourth-quarter profit of $106 million, or 68 cents a share, on $1.56 billion revenue. The company had been expected to report a profit of 49 cents a share, according to First Call estimates.

In the year-ago quarter, Apple reported a loss of $161 million, or $1.26 a share, on $1.6 billion revenue.

Apple (AAPL) shares closed at 37-3/8, down 1-3/8 in Wednesday trade. Analysts said investors were anticipating strong results and began selling to lock in profits once the companies earnings were announced.

For fiscal 1998, Apple logged earnings of $309 million, or $2.10 a share, on $5.94 billion revenue, the company's first profitable year since 1995. Analysts hadexpected a profit of $1.71 a share for fiscal 1998.

The company lost $1.05 billion, or $8.29 a share, on $7 billion in revenue in fiscal 1997.

Apple's interim chief executive, Steve Jobs, attributed much of the company's success to strong sales of its new iMac computer. Apple shipped 278,000 iMac's in the first six weeks after the computer's May 6 release, making it the company's fastest-ever selling Macintosh.

Unit shipments increased 28 per cent from the year-ago period while ending inventory dropped to $78 million, or six days of inventory.

"Apple grew faster than the industry this quarter for the first time in nearly five years," Jobs said.

The company also noted that more than 40 per cent of iMac buyers were new Apple customers, indicating the company was able to appeal to users outside its loyal following. The company also noted that 12.5 per cent of iMac customers were users of Windows-based computers.

Jobs attributed Apple's strong showing to the company's new streamlined business focus,noting Apple cut the number of product families down to four from 15 a year ago. Apple also exited several unprofitable businesses this year, including printers and the Newton handheld computer.

Profit margins to decline

Apple chief financial officer, Fred Anderson, said Apple's gross profit margins in the first quarter will be slightly less than fourth-quarter margins, which were 26.8 per cent of revenues.

Anderson said the low-cost iMac, which retails for $1,299, and higher marketing expenses will likely drive margins lower.

The chief financial officer noted those higher marketing expenses will come from aggressive promotion of the iMac for the holiday season, but he declined to quantify the expected decline.

Those lower margins will be offset by higher revenues, Anderson said, noting that Apple intends to achieve year-over-year revenue growth in its first quarter for the first time in three years.

The company also said strong sales of the iMac enabled it to re-establish a distributionagreement with Best Buy Co. Inc. (BBY). In January, Best Buy announced it would no longer carry Macintosh computers because Apple's line at the time largely targeted the educational and publishing markets.