By Bill Rigby
Oct 28 Apple Inc's profit and margins
slid despite selling 33.8 million iPhones in its September
quarter, and greater China revenue climbed just 6 percent even
though two smartphone models hit store shelves in its
second-largest market last month.
The unremarkable quarterly numbers prompted some
disappointed investors to cash in recent gains in the stock,
which slid 5 percent at one stage after-hours on Monday.
Wall Street had hoped for a stronger beat on quarterly sales
after the company predicted in September that its revenue and
margins would come in at the high end of its own forecasts.
Chief Executive Tim Cook predicted a "really great" holiday
season: a crucial time for Apple as its new iPads go up against
Amazon.com Inc's Kindle Fire and its new iPhones
compete with lower-cost gadgets made by Samsung Electronics
and other rivals using Google Inc's Android
Sources have said demand for Apple's $100 cheaper, brightly
hued iPhone 5C lagged sales for the top-tier 5S, spurring
concerns about the iPhone's market positioning and its ability
to compete with a growing profusion of lower-cost rivals. The
iPhone 5C is available in the United States starting at $99 with
a contract, or $549 for an unlocked model with no contract.
In particular, some investors worry Apple may have missed a
chance to jumpstart sales and fend off Samsung in China with an
even more affordable phone. The company has ceded ground
steadily to Samsung and homegrown competition like Huawei
and Lenovo, but needs to stake out a bigger
spot in the world's top cellular market to rekindle growth.
Revenue from China, Hong Kong and Taiwan climbed just 6
percent to $5.7 billion in the quarter, despite the 5C and 5S
going on sale in September. The previous-generation iPhone 5
began selling in the country only in December, meaning
comparisons should have benefited from a more typical year-ago
quarter, analysts said.
Sales grew by about 24 percent from the previous quarter, or
by about $1.1 billion. But that lagged the roughly $1.4 billion
that Apple managed to tack on in the December quarter of 2012.
"It does raise the question, how well is Apple doing really,
in China?" said JMP Securities analyst Alex Gauna.
"Apple is a very healthy company," he added. But "if you
look at the last few quarters, and even with the guide, it's not
much of a growth company."
Cook told analysts on a conference call that results from
China were "pretty good" but acknowledged room for improvement.
"We obviously want to do better," he said.
HOPING FOR MORE
Cook did not address the overall popularity of the 5C on his
call with analysts but mentioned there was "a very significant
backlog" for the more expensive 5S.
The world's most valuable tech company said on Monday it
expected revenue of $55 billion to $58 billion this quarter,
outpacing Wall Street's forecast for about $55.65 billion.
Gross profit margin for the fourth quarter ended September
was 37 percent, down from 40 percent a year ago as intense
competition from the likes of Samsung took a toll. That was
roughly level with analysts' average 36.9 percent forecast.
"We would have expected higher gross margins," said
Morningstar analyst Brian Colello. "With the higher price phones
and clear preference toward the 5S, we were all expecting more
of a gross margin boost for the December quarter."
Shares in Apple, which have gained 17 percent since its
upbeat forecast last month, slid as much as 5 percent on Monday
before recovering after Cook said the company will continue
studying its capital-return program, addressing recent demands
by investors to share more of its cash hoard.
The stock was down 1.2 percent at about $523.43 after hours.
Beyond the holiday quarter, some investors still hold out
hope that the company that upended the cellphone industry and
popularized tablet computing can again dream up a revolutionary
device, returning Apple to the stellar growth of past years.
The company is increasingly hard-pressed to fend off rivals.
Strategy Analytics estimated on Monday that Apple's market share
slipped to 13.4 percent in the calendar third quarter from 15.6
percent previously, while Samsung led with 35.2 percent.
As growth tapers off, some shareholders have become
increasingly aggressive at seeking a bigger return of cash - the
company ended the September quarter with $146.8 billion in cash
plus short-term and long-term marketable securities.
Billionaire Carl Icahn, who owns 4.7 million Apple shares,
has led the charge, demanding the company initiate a tender
offer to buy back $150 billion of its stock.
Cook told analysts the company will continue to seek
shareholder input on its capital return program, and will
announce any changes in the first part of the new calendar year.
Apple said it sold 33.8 million iPhones last quarter,
roughly in line with expectations for 33 million to 36 million.
It sold 14.1 million iPads during the quarter, up very
slightly from 14 million in the year-ago quarter, and moved 4.6
million of its Mac computers, down from 4.9 million a year ago.
Revenue was $37.5 billion, ahead of Wall Street's average
forecast of $36.8 billion, according to Thomson Reuters I/B/E/S.
Earnings per share slid for the third straight quarter to
$8.26, but ahead of analysts' average estimate of $7.94.
"They had already preannounced and people got euphoric in
recent weeks. It wasn't a massive blowout," said Shannon Cross
of Cross Research.