Apple misses revenue forecast, stirs concern over growth

Apple Inc missed Wall Street's revenue forecast for the third straight quarter after iPhone sales came in below expectations, fanning fears that its dominance of the mobile industry was slipping.
Shares of the world's largest tech company fell 10 percent to $463 in after-hours trade, wiping out some $50 billion of its market value - nearly equivalent to that of Hewlett-Packard and Dell, combined.
On Wednesday, Apple said it shipped a record 47.8 million iPhones in the December quarter, up 29 percent from the year-ago period. But that lagged the 50 million that analysts on average had projected.
Expectations heading into the results had been subdued by news of possible production cutbacks by some component suppliers in Asia, triggering fears that demand for the iPhone, which accounts for half of Apple's revenue, and the iPad could be slowing.
But many investors clung to hopes for a repeat of years of historical outperformance, analysts said.
"It's going to call into question Apple's dominance in the space. It's still one of the strong players, the others being Samsung and Google. It's still a two-horse race, but Android continues to grow rapidly," said Sterne Agee analyst Shaw Wu.
"If you step back a bit, it's clear they shipped a lot of phones. But the problem is the high expectations that investors have. Apple's conservative guidance highlights the concerns over production cuts coming out of Asia recently."
Apple projected revenue of $41 billion to $43 billion in the current, second fiscal quarter, lagging the average Wall Street forecast of more than $45 billion.
Fiscal first quarter revenue rose 18 percent to $54.5 billion, below the average analyst estimate of $54.73 billion, though earnings per share of $13.81 beat the Street forecast of $13.47, according to Thomson Reuters I/B/E/S.
Apple also undershot revenue targets in the previous two quarters, and these results will prompt more questions on what Apple has in its product pipeline, and what it can do to attract new sales and maintain its growth trajectory, analysts said.
Net income of $13.07 billion was virtually flat with $13.06 billion a year earlier on higher manufacturing costs. The year-ago quarter also had an extra week compared to this year.
Gross margins consequently slid to 38.6 percent, from 44.7 percent previously.
"You can't just keep rolling out iPhones and iPads and think that everybody needs a new one," said Jeffrey Gundlach, who runs DoubleLine Capital LP, the $53 billion bond firm. "The mini? What is that all about? It is a slightly smaller iPad - so what? So that is our new definition of innovation?"
"There are plenty of competitors like Samsung and other legitimate competitors like them," added Gundlach, one of the highest-profile Apple bears. He maintains a $425 price target.
Shares of several of Apple's suppliers crumbled. Chip suppliers Skyworks and Cirrus Logic both fell more than 6 percent. Qualcomm Inc slipped 1.8 percent.
China is next big growth driver
Apple shares are down nearly 30 percent from a record high in September, in part on worries that its days of hyper growth are over and its mobile devices are no longer as popular.
Intense competition from Samsung's cheaper phones - powered by Google's Android software - and signs that the premium smartphone market may be close to saturation in developed markets have also caused a lot of investor anxiety.
Meanwhile, sales of the iPad came in at 22.9 million in the fiscal first quarter, roughly in line with forecasts.
On the brighter side, Chief Financial Officer Peter Oppenheimer told Reuters that iPhone sales more than doubled in greater China - a region that Apple Chief Executive Tim Cook has vowed to focus on as its next big growth driver.
The company will begin detailing results from that country going forward. Revenue from the region totaled $7.3 billion, up 60 percent from the year-ago December quarter.
"These results were OK, but they definitely raised a few questions," said Shannon Cross, analyst with Cross Research. "Gross margin trajectory looks fine so that's a positive and cash continues to grow. But I think investors are going to want to know what Apple plans to do with growing cash balance."
"And other questions are going to be around innovation and where the next products are coming from and what does Tim Cook see in the next 12 to 18 months."
Addressing production rumors
In an unusual move for Apple, which typically does not respond to speculation, Cook addressed the production cutback rumors at length on the conference call and questioned the accuracy of rumors about its plans.
Media reports earlier this month said the company is slashing orders for iPhone 5 and iPad screens and other components from its Asian suppliers.
"Even if a particular data point were factual, it would be impossible to accurately interpret the data point as to what it meant for our overall business, because the supply chain is very complex," he said, adding that Apple has multiple sources for components.
"Yields might vary. Supplier performance can vary. The beginning inventory positions can vary. There's just an inordinately long list of things that would make any single data point not a great proxy for what's going on," he said.
Apple's initial iPhone and iPad mini sales were hurt by supply constraints, but Cook expects supply to balance demand for the iPad mini this quarter. He also acknowledged that iPad was cannibalizing its high-margin Macintosh computers, but said it was a huge opportunity for the company.
"On iPad in particular, we have the mother of all opportunities here, because the Windows market is much, much larger than the Mac market is," he said. And I think it is clear that it's already cannibalizing some."
In another departure from tradition, Apple intends to tweak the way it both reports results and publishes forecasts.
Apart from breaking out results from China, the company also will no longer provide a single revenue or gross margin outlook. From Wednesday, it began providing the range it expects to hit, rather than the often-ludicrously conservative estimates that Apple was once notorious for.
The new policy took many by surprise.
"Before people could always ignore the guidance," said Dan Niles, Chief Investment Officer of AlphaOne Capital Partners, LLC. "Apple is telling investors that they need to pay attention to the guidance and you can't ignore it, which is basically what we all did in the past."
© Thomson Reuters 2012

iPhone most popular in US, while Android popular worldwide in Q4 2012: Report

Apple's iPhone remained the most popular smartphone among US buyers in the closing months of 2012 while Android handsets were on top worldwide, Kantar Worldpanel ComTech reported on Tuesday.
"At the end of 2012, the global (operating system) picture shows Android on top, but clearly the rate of growth it experienced over the past year is beginning to slow as easy wins from first-time smartphone buyers begin to reduce," said Kantar global consumer insight director Dominic Sunnebo.
Apple iPhones accounted for 51.2 percent of smartphone sales in the United States during the 12-week period ending December 23rd of last year, according to Kantar.
Smartphones powered by Google-backed Android software made up slightly more than 44 percent of sales while handsets based on Microsoft's Windows operating system were a distant third-place with 2.6 percent, the report indicated.
Android smartphones continued to be best sellers in major markets including Britain, China, Spain, Australia, and Germany while iPhones were favored in Japan as well as the United States, according to Kantor.
Windows smartphones appeared to be catching on in Europe, with its shares of sales in Britain and Italy climbing to 5.9 and 13.9 percent respectively, the reported indicated.
"Windows Phone is now starting to gain respectable shares in a number of key European countries," Sunnebo said.
"However, its performance in the Chinese and US markets remains underwhelming; these remain key challenges for Microsoft to overcome during 2013."

Sam4sammy :: iPhone 5 hits China as Apple shares slide further

The highly anticipated release of the iPhone 5 in China, Apple Inc's second-biggest market, failed to stop the recent share slide of the world's most valuable technology company on Friday, and analysts said Apple's longer-term China hopes may hinge on a partnership with the country's top telecoms carrier.
Apple's latest iPhone, sporting a larger 4-inch screen and 4G capability, was launched in the United States and 30 other countries in September, when the company sold more than 5 million of the devices in the first three days.
Apple's shares, however once among the most desirable of portfolio holdings have headed steadily lower since September on growing uncertainty about the company's ability to fend off unprecedented competition. This year saw a surge in sales of Amazon.com Inc's cheaper Kindle Fire and Microsoft Corp's first foray into the tablet market with its Surface.
Unlike the crowds that the iPhone 5 debut drew in many cities around the world since September, just one person was waiting at the Apple store in Shanghai's financial district when its doors opened at 9 a.m. on Friday.
"Some of our Chinese sources do not expect the iPhone 5 to do as well as the iPhone 4S," UBS analyst Steven Milunovich wrote in a note to clients.
China is Apple's fastest-growing market, bringing in about 15 percent of total revenue.
"In absolute terms, this (iPhone 5) launch will certainly result in strong sales for Apple in China. However, in relative terms, I don't believe it will move the needle enough in market share," said Shiv Putcha, a Mumbai-based analyst at Ovum, a global technology consultant.
Apple shares were down 3.6 percent at $510.55 on the Nasdaq on Friday afternoon. The stock has lost a quarter of its value since hitting a high of $705.07 on September 21, as it faces increasing competition from phones using Google Inc's Android operating system.
Cutting forecasts
In addition, analysts cut their forecasts for shipments of the iPhone.
Jefferies analyst Peter Misek trimmed his iPhone shipment estimates for the January-March quarter, saying that the technology company had started cutting orders to suppliers to balance excess inventory.
Misek cut his first-quarter iPhone sales estimate to 48 million from 52 million and gross margin expectations for the company by 2 percentage points to 40 percent.
UBS Investment Research cut its price target on Apple stock to $700 from $780 on lower expected iPhone and iPad shipments for the March quarter.
The brokerage said it was modeling more conservative growth for Apple after making supply chain checks that revealed that fewer iPhones were being built.
The iPhone is currently sold through Apple's seven stores, resellers and through China Unicom and China Telecom which together have fewer than half the mobile subscribers of bigger rival China Mobile.
"Apple's market share declined because of the transition between the iPhone 4S and 5. Their market share will recover (with the iPhone 5), but if you don't have China Mobile, the significant market share gains will be very difficult," said Huang Leping, an analyst at Nomura in Hong Kong.
Apple has been in talks about a tie-up with China Mobile for four years.
A deal with China's biggest carrier is seen as crucial to improve Apple's distribution in a market of 290 million users - which is forecast to double this year. But the company's failure to strike a deal with China Mobile means it is missing out on a large number of phone users.
As the China pie grows, Apple's sales increase, but without China Mobile, it is losing ground at a faster rate compared with other brands.
China Mobile and Apple initially said they were separated only by a technical issue - as the Chinese carrier runs a different 3G network from most of the world - but that has evolved into a broader and more complex issue of revenue-sharing.
"China Mobile and Apple still have to solve many issues, such as the business model, articles of cooperation and revenue division, but I believe we will reach an agreement eventually," China Mobile CEO Li Yue was reported by Chinese media as saying in Guangzhou last week.
Apple China declined to comment. China Mobile said it had no update to the Apple discussions.
In addition to Apple's share fall, shares of some of the company's suppliers were also down on Friday afternoon. Shares of Jabil Circuit Inc were down 5.6 percent at $17.50, Qualcomm Inc shares were down 3.2 percent at $60.76, Skyworks Solutions Inc stock was down 6.7 percent at $19.65, TriQuint Semiconductor Inc was down 3.9 percent at $4.65, Avago Technologies Ltd was down 3.9 percent at $32.38 and Cirrus Logic Inc was down 6.5 percent at $25.62.
China deal seen eventually
Cutting a deal with a Chinese state-owned carrier may be less optimal than the deals Apple is used to in other markets, and analysts note that China Mobile would not necessarily open the flood gates for Apple.
Ovum's Putcha believes Apple and China Mobile will eventually strike a deal - though this would be for an iPhone running on China Mobile's next-generation network rather than its current 3G network.
Of China Mobile's 704 million subscribers, only 79 million are on its 3G network, and Apple has been reluctant to sign up to China Mobile's underutilized, homegrown TD-SCDMA technology. "Apple likely doesn't see the return-on-investment in extending themselves for TD-SCDMA," Putcha said.
China Mobile is currently conducting a trial of its next-generation network, TD-LTE, which could be of more interest to Apple, but full-scale commercial use - and an iPhone tie-up - could still be years away.
Android threat
Meanwhile, rivals are circling, eating away at Apple's smartphone market share. Samsung Electronics, Lenovo Group and little-known Chinese brand Coolpad held the top three slots in the third quarter, according to research firm DC.
All three have relationships with China Mobile and offer smartphone models at different price points. Apple competes exclusively at the high end, and even there, rivals are rolling out models with China Mobile. Last week, Nokia said it planned to release its latest Lumia smartphone with China's top carrier, which is also expected to launch Research in Motion's new Blackberry 10, analysts predict.
"The threat will still come more from the Android camp where they have many vendors already working with China Mobile and offering high-end phones," said TZ Wong, a Singapore-based IDC analyst.
While these smartphones do not generate the buzz of a new iPhone, Chinese buyers are not known for their brand loyalty, and this could siphon away users considering an Apple upgrade.
"I've used a Blackberry, Android and iOS and, personally, I want to try the Windows 8," said Andy Huang, a 37-year-old fund manager, who owns most iPad models, an iPhone 4 and a 4S. "I think the Windows 8 is very innovative."
With a China Mobile deal appearing to be still a ways off, Apple could always boost market share by offering cheaper models - the basic iPhone 5 will cost 5,288 yuan without a contract - though this appears an unlikely route for a high-end brand.
"If they want to expand market share, probably the only way to do it here dramatically would be to put out a lower-cost phone," said Michael Clendenin, managing director at RedTech Advisors. "It's really uncertain if they'd decide to go that route ... Apple's a mystery in that regard."
© Thomson Reuters 2012