SAN FRANCISCO (Reuters) - Apple Inc said on Monday its current-quarter earnings would be well below Wall Street targets, sending shares of the iPhone, iPod and Macintosh maker down 10 percent.
Apple has a reputation for conservative financial forecasts, and it posted third-quarter earnings on Monday that swept by its own target and those of Wall Street, leaving some analysts including Pacific Crest Securities’ Andrew Hargreaves sure that the company was playing an old game.
“Their outlooks aren’t based in reality,” he said. “I think it is them doing what they do, which is guiding extremely conservatively and then beating their own numbers.”
Fading consumer spending has knocked down profits of many U.S. companies, and reports from Google Inc and Microsoft Corp unnerved investors last week.
But Apple posted record Macintosh computer sales, widely seen as proof that many buyers of iPhones and iPods go on to buy its mainstay product too.
“Given the results that we just posted, it’s hard to see any obvious impact of the economy,” Chief Financial Officer Peter Oppenheimer told Reuters. “We expect to sell more Macs in the September quarter than we did in June.”
But he said back-to-school promotions and investments would cut profit margins, and Pacific Crest’s Hargreaves said the CFO was similarly dour last year in his outlook.
Apple forecast September-quarter earnings of $1.00 per share, below the Wall Street target range of $1.13 to $1.41 per share and badly lagging the average of $1.25. Apple’s revenue target of $7.8 billion trails Wall Street’s $8.3 billion view for its fiscal fourth quarter, according to Reuters Estimates.
Apple’s third-quarter net income of $1.07 billion or $1.19 per share came in 11 cents per share ahead of Wall Street targets and was up from $818.0 million, or 92 cents per share, a year ago. Revenue rose to $7.46 billion from $5.41 billion.
Analysts, on average, expected $1.08 per share on revenue of $7.37 billion. Apple itself had projected $1 per share.
Addressing concerns that Chief Executive Steve Jobs’s health may have suffered in recent months, Oppenheimer said on a conference call that Jobs has no plans to leave Apple and his health was a private matter. The CEO had successful pancreatic cancer surgery about four years ago but looked thin at a recent conference, when Apple said he was fighting a “common bug”.
Apple shipped nearly 2.5 million Macs in its third quarter, up 41 percent from a year ago and in line with analysts’ expectations. It sold more than 11 million iPods, up 12 percent from a year ago and ahead of forecasts of up to 10.5 million.
Sales of its iPhone mobile handsets were slightly above forecasts. Apple sold 717,000 in the quarter, more than double the amount sold a year ago when the device was first launched.
Third-quarter gross margin of 34.8 percent topped forecasts of as much as 33.6 percent, and Apple forecast a fourth-quarter gross margin of 31.5 percent, and about 30 percent for 2009.
American Technology Research analyst Shaw Wu said the 2009 margin prediction was 3 or 4 percentage points worse than Wall Street expected. Prices of raw materials such as aluminum and even plastic could hurt Apple, he said.
But he noted iPhones were more profitable than other Apple devices and that as sales rose, overall margins would rise. The effect of iPhone sales is slow to materialize since Apple recognizes revenue over the life of the device.
“This concern could be very short-lived,” Wu said.
Executives said they expected favorable pricing of LCD flat panels and NAND memory used in consumer devices, but DRAM computer memory prices would be seasonably strong this quarter.
Apple this month rolled out a new iPhone, with faster Internet speeds, in more than 20 countries, and it plans to launch it in 20 more countries on August 22. There have been reports of iPhone 3G shortages, but Chief Operating Officer Tim Cook said he was pleased with how production was ramping up.
Jobs said in a statement the company was working on several other new products to launch in the coming months, but executives declined to give details.
Shares of Apple have declined 16 percent this year, based on Monday’s close, compared with a decline of 14 percent in the Standard & Poor’s 500 Index. The stock fell to $149.70 in extended trade from its close of $166.29 on Monday.
Additional reporting by Michele Gershberg in New York and Alexandria Sage in San Francisco; Editing by Braden Reddall