Apple iPad sales disappoint, Street eyes the holidays

SAN FRANCISCO Fri Oct 26, 2012 12:55am EDT

1 of 3. The Apple Inc. logo hangs inside the newest Apple Store in New York City's Grand Central Station December 7, 2011, during a press preview of the store, which opens to the public on Friday.

Credit: Reuters/Mike Segar

SAN FRANCISCO (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 November 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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Comments (4)
CJWill wrote:
There’s another new series of performance-priced Android tablets launched this week with some features that are pretty impressive — one is called the Novo 7 Flame – priced at $189 – it’s a 7 inch tablet that gives the $249 Nexus 7 & the new $330 Mini iPad some serious competition — the Novo 7 Flame has 16GB, Android 4.1 and Google Play (with 400k+ Apps), a high resolution 1280×800 screen, Micro-SD for easy portable storage, HDMI to view movies and media downloads on a TV, Two Cameras – a 5 MegaPixel camera with AF & Flash and a 2 MegaPixel Webcam; plus great connection — Bluetooth, Ethernet, WiFi and an option for 3G… The tablet is made by Ainol Electronics which received “Best Tablet of the Year” – runner-up status at CNET/Consumer Electronics Show 2012 — and they also have two other new 10-inch tablets coming out with high resolution screens — one has most features mentioned above and GPS, with a Dual Core processor with a 1280×800 IPS display for $220; and another the same with a powerful Quad Core with a stunning 1920×1200 Liquid Crystal display (like Apple’s Retina screen) for around $265 — all offer pretty nice specs/price ratio and are available at a site called TabletSprint – which also has a few other nicely priced Android tablets with 3G Built-in as well.

Oct 25, 2012 11:08pm EDT  --  Report as abuse
jimmy6p wrote:
Hey Apple! Reality bites doesn’t it?

Oct 25, 2012 11:33pm EDT  --  Report as abuse
Rich_F wrote:
Apple is not going to be able to hold onto their market share let alone grow it with every companies sights set on the post-PC tablet market. Every tom dick and harry will be releasing a tablet at cost or losing money to gain market share and its this type of competition that spurs innovation. If I owned Apple stock at $600 i’d be lightening up right about now.

Oct 26, 2012 10:05am EDT  --  Report as abuse
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