By Bill Rigby
Jan 27 Lower-than-expected holiday iPhone sales
and a weak revenue forecast by Apple Inc renewed fears
about Chinese demand and a tepid global market, wiping 8 percent
off company stock.
This year was to have been Apple Inc's watershed moment in
China, when a long-awaited deal with the nation's largest
carrier was to have propelled it back toward the top ranks of
its most crucial market, clawing back ground from rival Samsung
Instead, the forecast for the March quarter - when Apple is
expected to have reaped the fruits of that long-awaited deal -
raises questions of whether investors had over-estimated that
arrangement, and broader concerns about flagging demand for
smartphones and tablets in general.
"There's no doubt that shipments (to China Mobile) are lower
than almost anybody expected," said Pacific Crest Securities'
Andy Hargreaves. Globally, "the high-end smartphone and tablet
markets are saturated, and that's not going to grow."
The world's most valuable technology company sold a record
51 million iPhones in the quarter, but that was still shy of the
55 million or so that analysts had expected.
The company forecast sales of $42 billion to $44 billion
this quarter, brisker than usual because of Apple's new deal to
sell iPhones through China Mobile Ltd, the country's
No. 1 carrier. But Wall Street had expected even more - $46
billion, on average.
The company on Monday recorded sales of $57.6 billion in its
December or fiscal first quarter, versus expectations for about
$57.5 billion. Net profit was flat from a year earlier at $13.1
billion, or $14.50 a share, compared to Thomson Reuters I/B/E/S
estimate of $14.07.
"After showing modest signs of improvement, we're back to a
no-growth outlook," said JMP Securities' Alex Gauna. "It's
something Apple needs to find an answer to... If it can't prove
that it's going to be a growth story again, the valuation is too
Chief Financial Officer Peter Oppenheimer told analysts on a
conference call the March-quarter revenue outlook reflected the
effects of a strong U.S. dollar, and more balanced levels of
demand and supply for iPhones at the start of 2014 than a year
earlier, when demand outstripped available inventory.
In the December quarter, Apple recorded gross profit margins
of 37.9 percent, roughly in line with expectations.
But it was the iPhone sales and revenue outlook shortfall
that drew attention.
The iPhone maker has been ceding ground to Samsung and other
rivals in China, its No. 2 market, but investors hope its tie-up
with the country's dominant mobile carrier will help reverse its
fortunes in the world's largest cellular arena.
In the closely watched greater China region, which includes
Hong Kong and Taiwan, revenue jumped 29 percent from a year
earlier to $8.84 billion, bolstered by strong iPad sales and the
iPhone's global launch in September, when China was included
among launch countries for the first time.
Company executives did not talk about iPhone unit sales in
the world's No. 2 economy. But intense competition not just from
Samsung but also lower-cost, local rivals like Huawei and Xiaomi
is impeding its progress.
The latest figures show Samsung increasing its lead in
global smartphone sales.
In the less competitive tablet arena, Apple sold a record 26
million iPads globally in the quarter, in line with Wall Street
estimates. Oppenheimer told Reuters the company more than
doubled sales of the tablet in mainland China during the
December quarter, helping drive that milestone.
The iPod, which sparked the revival of Apple last decade, is
now a waning product, selling just over 6 million in the
quarter, less than half the year-ago tally.
"IPod sales declined by 52 percent year-over-year in the
December quarter and we would expect them to continue to decline
year-over-year in the March quarter," said Oppenheimer.
Longer term, investors continue to hope that Apple, which
last came out with a revolutionary new device - the iPad - in
2010, has something up its sleeve for 2014. Speculation
currently revolves around a smartwatch or even a long-rumored TV
product. Others say Apple can use its huge iPhone and iTunes
base to get into mobile payments or advertising.
"What we need to see from them is some sort of new product
development and it would be likely in the area of software,
mobile payments and advertisements that would get us thinking
that there is an opportunity for accretion," Gauna said.
"Hardware can only go in one direction and that's flat or
down. It has to be something in the innovation space and they
have a lot of things they can do."