Apple Earnings Have A Bittersweet Taste
Apple Inc. (NASDAQ:AAPL) reported its earnings for the fourth fiscal quarter yesterday, and the results were somewhat mixed.
iPhone Sales Above Expectations
Apple’s flagship product, the iPhone, delivered better than expected results for the quarter. Tim Cook, Apple’s CEO, said, “We’re pleased to report a strong finish to an amazing year with record fourth-quarter revenue, including sales of almost 34 million iPhones.”
This high number of sales helped boost Apple’s earnings to $37.5 billion and this exceeded both analysts’ expectations and Apple’s guidance of $36.84 billion. Last year’s fourth quarter earnings were $35.97 billion, and this year showed a healthy increase. All in all the iPhone performed quite well, boosting profits to $8.26 per share.
Gross Margin Down From Last Year
Perhaps the most important measure of a company’s profitability is gross margin. This quarter showed a gross margin of 37 percent, which is down from last year’s 40 percent. This comes directly in line with Apple’s guidance of 36 to 37 percent.
Holiday Forecast Leaves Apple’s Tree Slightly Bare
Perhaps the most disappointing part of the earnings call was the holiday season forecast. This part of the year is typically Apple’s biggest sales season. Guidance for the quarter is calling for sales in the $55 billion to $58 billion range with a gross margin of 36.5 percent to 37.5 percent.
The common sentiment on the street was a forecast of $55.7 billion in sales with a 37 to 38 percent gross margin. Apple explained the slight drop in gross margin by calling it a byproduct of increasing deferred revenue on the iPhone, Mac, and iPad products due to the new software distribution plan.
iPad & Mac Fail To Impress
While the iPhone sold 33.8 million units in the quarter and recorded a 26 percent increase, the iPad and Mac sales were not so great. iPad remained nearly flat from last year’s fourth quarter at 14.1 million units. However, Mac dropped from 4.9 million units to 4.6 million, making it a very poor performer indeed.
Rivals Forcing Apple Inc. To Bring Out New Products
Samsung Electronics Co., Ltd.(KRX:005935) and Google Inc. (NASDAQ:GOOG) are Apple Inc. (NASDAQ:AAPL)’s biggest competitors in the smartphone and tablet market. Both of these giants have put incredible pressure on Apple to keep up with their product releases. So far in 2013 Apple has updated the MacBook line of notebooks, the iMac desktop, iPhone, iPad, and the Mac Pro workstation. The Cupertino company has also updated the software, such as iOS7 and the Mac operating systems, in order to make them easier to use. They have also made the iLife and iWork apps free to customers. According to Tim Cook this was done to ensure that Apple customers have the latest versions of this software and can make the most of their user experience.
Stock Prices Relatively Flat
Apple Inc. (NASDAQ:AAPL) shares rose $3.92 (less than 1 percent) prior to the earnings call. However, in late trading the shares were down less than 1 percent, leaving the shares relatively unchanged in price.
Apple Needs To Innovate
As noted above, some of Apple’s competitors are offering more and more products each year, and Apple is struggling to keep up. The company desperately needs another coup like the original iPhone. If Tim Cook can push Apple to offer a brand new, innovative product the company could easily dominate the mobile market once again. However, it appears that for the present at least, the California tech giant will rest on the iPhone and iPad for another quarter.
Disclosure: The author has no position in the stocks mentioned in this article, and does not intend to initiate any position in the next 48 hours.
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