APPLE'S FISCAL THIRD QTR 2012 RESULTS DISAPPOINT DESPITE $35 BIL IN REVS AND NET INCOME OF $8.8 BIL, IPHONE SALES SOFTEN

On Tuesday, Apple Inc. revealed that both revenue and net income posted increases of just over 20 percent – cause for celebration at most companies, but meager by Apple standards.

Apple's fiscal third quarter financial highlights were as follows:

• Revenue:  $35 billion, up 23 percent. Analysts were expecting $37.5 billion.  Apple forecast $34 billion, while analysts have been expecting $38.1 billion.
• Net income: $8.8 billion, up 21 percent from $7.3 billion.  Apple's forecast points to year-over-year profit growth of just 9 percent.
• Earnings Per Share:  $9.32 compared to $7.79 per share, a year ago.  Analysts polled by FactSet were expecting earnings of $10.37 per share.  Apple forecast earnings of $7.65 per share for the current quarter, well below the average analyst forecast at $10.26.  

Investors sold off Apple shares, but the reaction was muted compared to the earnings miss. Apple shares fell $31.92, or 5.3 percent, to $569 in after-hours trading, after the release of the results.

With its market value of $539 billion, Apple is by far the world's largest company.

Apple's quarterly revenue from gadget sales since Q1 2011: 

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More consumers are buying the least expensive iPhones and iPads, a new phenomenon that is causing Apple's breakneck growth rate to slow.   Apple's growth was the slowest in more than two years, and failed to meet analyst expectations.

David Rolfe, chief investment officer at Wedgewood Partners Inc said.

"The sheen is off the apple: It was a miss, no question about it." 

Apple routinely blows past analyst expectations. It has only come in under their earnings expectations twice in ten years.

Rolfe said.

"We became too confident, in our expectations, that Apple had literally a perfect pulse on end demand throughout the globe... and quite simply, that wasn't the case this quarter." 

Apple had disappointing unit sales and average selling prices for the iPad and iPhone: 

• Apple sold 17 million iPads in April to June period, beating expectations.  
• Apple's average selling prices for the iPad declined to lowest level ever.
• Apple sold 26 million iPhones, at the low end of expectations.   
• Apple's average selling prices for the  iPhone were the lowest seen since 2010.  

According to Peter Oppenheimer, Apple's chief financial officer, the reasons for the disappointing unit sales and average selling prices were:

• Consumers bought less expensive older versions of the devices. Apple introduced a new iPad in March, but kept the older model in stores while cutting its price.
• The strengthening dollar also meant that overseas sales at constant prices translated into fewer dollars for Apple.

Sales in China, which have been a growth engine for the company, also declined compared to the previous quarter. CEO Tim Cook said that was because the iPhone 4S went on sale in China during the quarter that ended in March, and the company stocked inventories in the country.

Cook is known as an efficient manager of production and supply. He took over after founder and CEO Steve Jobs, who died in October.

Cook said he didn't see any effect of the economic slowdown in China. The troubles in Europe were evident, however. Sales to the continent grew just 16 percent.

Cook also blamed the tepid iPhone sales – up 28 percent from a year ago, but down from the previous quarter – on anticipation building for the next iPhone model. Apple hasn't said when it's arriving, but most company watchers now expect it in October.

Rolfe had expected stronger iPhone sales, and said he's surprised that consumers are holding off on buying iPhones as much as six months before the arrival of a new model. Previously, iPhone sales started tapering off about three months before the arrival of a new model.

Apple last missed expectations when it reported results for the quarter that ended in September last year. That was due to the iPhone 4S's launch being pushed from that quarter to the following one, and it made up the shortfall with very strong sales in the holiday quarter.

Apple's chief financial officer, Peter Oppenheimer, said the new version of its operating system for Macs, Mountain Lion, will go on sale Wednesday.-ddd

COMMENTARY:   In order to gain a better perspective of just how disappointing Apple's financial results for the fiscal third quarter 2012 were, please read my blog posts dated April 24, 2012 and January 25, 2012 regarding Apple's operating results for its second and first fiscal quarters respectively.

Here's what I said about the fiscal second quarter 2012: 

"Apple posted quarterly revenue of $39.2 billion and quarterly net profit of $11.6 billion, or $12.30 per diluted share. These results compare to revenue of $24.7 billion and net profit of $6.0 billion, or $6.40 per diluted share, in the year-ago quarter. Gross margin was 47.4 percent compared to 41.4 percent in the year-ago quarter. International sales accounted for 64 percent of the quarter’s revenue."

Apple's fiscal second quarter 2012 unit sales of iPhones, iPads, Macs and iPods were as follows:

• 35.1 million iPhones in the quarter, representing 88 percent unit growth over the year-ago quarter.  
• 11.8 million iPads during the quarter, a 151 percent unit increase over the year-ago quarter.
• 4 million Macs during the quarter, a 7 percent unit increase over the year-ago quarter.
• 7.7 million iPods, a 15 percent unit decline from the year-ago quarter.

Here's what I said about Apple's fiscal first quarter 2012 financial results:

"Wow, those are truly impressive numbers for Apple's 1st Quarter ending December 31, 2011.   Apple is firing on all cylinders, dominating in every financial measure imaginable."  

In the fiscal first quarter 2012, Apple had revenue of $46.33 billion and profits of $13.87 a share. Street consensus for the quarter had been for $39.1 billion in revenue and profits of $10.16 a share; guidance was $37 billion in revenue and profits of $9.30 a share.

Apple's fiscal first quarter 2012 unit sales of iPhones, iPads, Macs and iPods were as follows:

• 37.04 million iPhones were sold in the fiscal first quarter (30.2 million iPhones had been forecasted for the quarter).
• 15.43 million iPads were sold in the fiscal first quarter (13.6 million iPads had been forecasted for the quarter). 
• 5.2 million Macs were sold in the fiscal first quarter (5.16 Macs had been forecasted for the quarter).
• 15.4 million iPods were sold in the fiscal first quarter (13.6 million iPods had been forecasted for the quarter).

Apple is definitely showing signs of finally slowing down when it comes to unit sales of its magical gadgets.  It's my feeling that stock analysts that follow Apple were lulled into a sense of complacency, thinking that Apple could continue to generate revenues, profits and unit sales that would exceed their forecasts.  

Many analysts do not expect Apple to release the iPhone 5 until October 2012, which after the close of the Company's fiscal year, so I have a feeling that revenues and unit sales of the iPhone 4S will be below their expectations.  If I were an analyst I would go along with Apple's forecasts for the iPhone.  

It has been rumored that Apple may introduce a mini-iPad in the fall (fiscal fourth quarter), in order to compete against Amazon's Kindle Fire and Google's Nexus 7 tablet.  If this occurs, this could affect unit sales and revenues from the sale of the larger 10-inch "new iPad" (iPad 3 with the retina display).   Google completely sold out of the 7-inch Nexus 7 tablet, so it certainly looks like there is going to be a brisk demand for a smaller tablet.   Things are getting interesting, and Apple is finally feeling pressue from the competition.  Stay tuned.  

Courtesy of an article dated July 24, 2012 appearing in Huffington Post Tech

Comments

[SudhirK]

Apple is one of my favourite brand, even most of the people in my company raylogic.in uses Apple products.I wish more and more Apple products come i market and it grow well cause its one of the best.