UPDATE 5-Apple iPad sales disappoint, Street eyes the holidays

Fri Oct 26, 2012 12:53am EDT

* Sales of iPad disappoint, results fail to impress
    * Investors focus on year-end holiday quarter
    * FY revenue jumps 45 pct to $156.5 bln
    * China FY revenue soars 78 pct to $23.8 bln
    * Apple to launch iPhone 5 in China in December

 (Adds China iPhone 5 launch details, comments on China)
    By Poornima Gupta
    SAN FRANCISCO, Oct 25 (Reuters) - Apple Inc 
delivered a second straight quarter of disappointing results and
iPad sales fell well short of Wall Street's targets, marring its
record of consistently blowing past investors' expectations.
    Shares in the world's most valuable technology company
briefly dipped to levels not seen since the start of August,
after it delivered a 27 percent rise in fourth-quarter revenue
and a 24 percent increase in earnings.
    The numbers, while in line with expectations, lacked the
positive surprises that investors have grown used to, and came
after Apple undershot revenue targets in the previous quarter.
Its shares bounced back after CEO Tim Cook told analysts on a
conference call that the latest iPhone 5 was heavily backlogged
but the company had mostly worked out kinks in its supply chain.
    Apple shipped 26.9 million iPhones in the last quarter, just
ahead of analysts' predictions, but iPad sales of 14 million
were well below lowered forecasts for the tablet as the economy
remained weak and consumers awaited the iPad mini, which will
hit store shelves next month. South Korean rival Samsung
Electronics Co sold 56.3 million smartphones in the
quarter, according to research firm IDC, giving it 31.3 percent
global market share, more than double that of Apple.
 
    
    FEVERED COMPETITION
    Analysts say the real test for Apple will come during the
crucial year-end holiday shopping season, when competition will
reach fever-pitch against new gadgets from Amazon.com Inc
, Google Inc and Microsoft Corp.
    "Going into earnings we were wondering if the slowing
economy will catch up with Wall Street, and it has," said
Channing Smith, co-manager of the Capital Advisors Growth Fund.
    "Apple is very well positioned with the iPad and now the
iPad mini. It has a great smartphone and we expect the iPhone 5
to sell very well. The outlook is conservative, but that's not
surprising. Err on the side of caution is a proven formula."
    Apple heads into the current quarter after refreshing almost
all of its product lines, including introducing an upgraded,
fourth-generation full-sized iPad. The December quarter will
show how well consumers respond to its latest gamble - the iPad
mini - which goes on sale on Nov. 2.
    Quarterly revenue in China, Apple's second-largest market,
rose 26 percent, and jumped nearly 80 percent to $23.8 billion
over the full year, contributing 15 percent of Apple's total,
Cook told analysts. Apple plans to launch the iPhone 5 in China
in December, hoping to staunch market share loss in what is set
to become the world's largest smartphone market this year.
    Apple's China smartphone market share almost halved to 10
percent in April-June as buyers waited for the iPhone 5.
    
    
    
    ONE WEEK LESS
    For the December quarter, Apple forecast revenue of $52
billion, below the average estimate of $55 billion, according to
Thomson Reuters I/B/E/S. It expects margins of 36 percent, far
lower than analysts' expected 43 percent.
    Chief Financial Officer Peter Oppenheimer mostly attributed
the lower margin and conservative guidance to a combination of a
stronger dollar, higher costs associated with new products, and
the fact that Apple's next fiscal quarter has one less week than
the same period a year ago.
    Apple's stock was holding steady at $609.40 in extended
trade after flirting with the $600 level. The shares had ended
regular trade at $609.54.
    Supply constraints holding up sales of the iPad and iPhone
dominated discussions between analysts and Apple executives
during the post-results conference call. Apple had struggled to
deliver large quantities of the iPhone 5 since its launch in
late September, with the waitlist for the device at one point
stretching to three weeks in some regions. 
    "Our supply output is significantly higher than it was
earlier in October," Cook said, referring to the iPhone 5. "And
I'm confident we'll be able to supply quite a few during the
quarter."
    
    CAR THAT FLIES AND FLOATS
    Cook also opined on Microsoft's new Windows 8-based
Surface tablet that will hit stores early on Friday. 
    "I haven't personally played with the Surface yet, but what
we're reading about it, is that it's a fairly compromised,
confusing product," he said. "I suppose you could design a car
that flies and floats, but I don't think it would do all of
those things very well."
    Despite the lackluster fourth quarter, Apple put up big
numbers for the year, ending its fiscal 2012 with a 45 percent
increase in revenue to $156.5 billion, while net income was up
61 percent at $41.7 billion.
    For the final fiscal quarter, it posted net income of $8.2
billion, or $8.67 a diluted share, on revenue of $35.96 billion,
versus $6.6 billion, or $7.05 a share, a year earlier. Analysts
had expected on average that Apple would earn $8.75 per share.
    Apple ended the quarter with $121.3 billion in cash and
securities, of which $83 billion was offshore.

 (Additional reporting by Melanie Lee in SHANGHAI; Editing by
Richard Chang, Edmund Klamann and Ian Geoghegan)
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