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

LG Display posts robust Q4 profit amid Apple worries

LG Display Co Ltd reported a second consecutive quarterly profit, beating forecasts by far on a rebound in television sales during the year-end holiday season and solid sales of screens used in Apple Inc's iPad and iPhone.
But concerns about slower growth for Apple products have risen, particularly in the wake of disappointing earnings from the U.S. company on Wednesday, and analysts have forecast earnings for the South Korean screen maker to slide in the first quarter.
LG Display said it expected its LCD panel shipments to decline by around 15 percent in the first quarter from the previous quarter.
The company, which provides about 70 percent of Apple iPad screens and vies with Samsung Electronics Co Ltd's panel unit for the top position in liquid crystal display flat screens globally, reported 587 billion won in operating profit for the October-December quarter.
That beat an average prediction for a 441 billion won profit in a poll of eight analysts by Thomson Reuters and was up from an operating loss of 155 billion won for the same period a year earlier.
It also marks its highest quarterly profit since the second quarter of 2010 and a continuation of a turnaround that began in July-September after seven straight quarters of losses, mainly due to an industry oversupply of TV panels. Sales rose to 8.7 trillion won in the quarter, a quarterly record.
Apple sold 18 million more iPhones in the December quarter from the previous quarter, as it expanded iPhone 5 sales. The introducion of the iPad mini also boosted LG's panel shipments.
But hit by growing worries about demand for Apple products, LG Display's shares have lost about 17 percent since December after gaining 40 percent in the first 11 months of 2012. Prior to the results, they closed down 1.2 percent, underperforming a 0.8 percent decline in the broader market.
Apple's iPhone sales were, however, weaker than expected, fanning fears that its dominance of the mobile industry was slipping.
In forecasts made prior to Apple and LG Display's reuslts, analysts expect LG Display's first-quarter operating profit to tumble to around 123 billion won.
CLSA analyst Matt Evans estimated this week that LG's iPad panel shipments could tumble to as few as 2 million units in the first quarter, from the fourth-quarter's 12 million, partly due to increased inventory following weak sales in December.
Two industry sources told Reuters last week that rival Sharp Corp of Japan has nearly halted production of 9.7-inch screens for iPad, possibly as demand shifts to the iPad mini.
Sharp supplies around 17 percent of Apple's iPad screens while Samsung provides 12 percent, according to research firm DisplaySearch.
Apple's Chief Financial Officer Peter Oppenheimer said iPad sales are expected to fall in the first-quarter, as they normally do after the year-end holiday season.
© Thomson Reuters 2012

Apple ships record 47.8 million iPhones and 22.9 million iPads in Q1 2013

Apple's blockbuster revenue growth is slowing drastically, as iPhone sales plateau and the company finds itself lacking revolutionary new products.
The company's warning, issued Wednesday as part of its financial results for the holiday quarter, sent Apple Inc.'s stock plunging by more than 10 percent, wiping out a year's worth of gains.
Analysts said the warning suggested Apple can no longer sustain its growth without some completely new products. Its last revolutionary creation, the iPad, was launched in 2010. Co-founder Steve Jobs, who was the engine behind the creation of the iPod, iPhone and iPad, died in 2011.
"It has been an overriding concern with Apple that they would not be able to generate revenue growth just rolling out new versions of old products," said Jeff Sica, president and chief investment officer of SICA Wealth Management. "Now they've proven it in their numbers."
On a conference call with analysts, Apple CEO Tim Cook rebutted that idea, but as usual, gave no details.
"We're working on some incredible stuff. The pipeline is chock full," he said.
Before he died in 2011, Apple co-founder Steve Jobs told biographer Walter Isaacson that he had figured out how to create a groundbreaking, easy-to-use TV set. Since then, company watchers have been waiting for the company to bring out something in that vein to re-energize sales. Cook said the company was still working on it.
"I tend to believe that there's a lot we can contribute in the space, and so we continue to pull the string and see where it leads us," he said.
Apple said it expects sales of between $41 billion and $43 billion in the current quarter, which ends in March. That would usually be little cause for concern, even though analysts were expecting $45.6 billion, because Apple usually lowballs its forecasts. But Chief Financial Officer Peter Oppenheimer said the company is changing its practices and providing a reasonable range rather than a single, easily achievable number.
That means Apple is looking at sales growth of about 7 percent from last year's January to March quarter, a striking number for a company that's posted double-digit increases in every quarter except one since 2008.
Apple's stock fell $55.58 to $458.43 in extended trading, after the release of the results. The shares are down 35 percent from their all-time high, hit Sept. 21, when the iPhone 5 launched.
Fueled by earlier versions of the iPhone, Apple's market capitalization decisively overtook that of Exxon Mobil in early 2012, making it the world's most valuable company. With Wednesday's drop, Apple is worth just 5 percent more than Exxon.
Apple's enviable profit growth also hit a wall in the October to December quarter. It said net income in the fiscal first quarter was $13.1 billion, or $13.81 per share, flat with a year ago. That still beat expectations, as analysts polled by FactSet had forecast earnings of $13.48 per share.
Revenue was $54.5 billion, up 18 percent from a year ago. Analysts were expecting $55 billion. Sales were held back by the fact that the latest quarter had 13 weeks, one less than the corresponding 2011 quarter.
Apple shipped 47.8 million iPhones in the quarter, about 1 million less than analysts were expecting, and 22.9 million iPads, also about 1 million short.
Most surprisingly, Mac sales were also 1 million short, at 4.1 million. That's a 22 percent drop from shipments a year ago. Oppenheimer said this was because Apple couldn't get the new iMac desktops out before December.
Cook said iPhone supplies were short too, and the company could have sold more of both the iPhone 5 and older iPhone 4 if it had been able to make more.
Most technology companies would be ecstatic if they posted 18 percent sales growth and $13 billion in profit for a single quarter, but Apple is held to a high standard, set by the shocking, iPhone-propelled success of the last few years.
"Apple has been growing tremendously and that level of growth can't be sustained by any company," said Sarah Rotman Epps, senior analyst at Forrester Research.
Investors have already been concerned that Apple's strategy of keeping the price of the iPhone high means it's losing out on sales, particularly overseas. Consumers are instead opting to buy cheaper smartphones running Google Inc.'s Android software, which has propelled South Korea's Samsung Electronics to the world's largest maker of smartphones. The average wholesale price of the iPhone is $640, hundreds of dollars more than smartphones with comparable hardware.
There's speculation among company watchers that the company will produce a cheaper iPhone, but that would cut into its profit margin and could tarnish the company's image as a purveyor of premium products.
Apple had warned that the holiday quarter's profits would be lower than Wall Street was initially expecting, because it had so many new products coming out, including the iPhone 5 and iPad Mini. New production lines are more expensive to run and yield more defective products that need to be redone or thrown out rather than sold.

Apple working on thinner, lighter 5th generation iPad: Report

If inside sources of a Japanese blog Macotakara are to be believed, then Apple is reportedly planning to introduce the next generation iPad in the upcoming months.

The blog, which has been known for its accurate predictions in the past with Apple products, states that this version of the company's 9.7-inch tablet will be thinner and lighter drawing on elements from the recently introduced 7-inch iPad mini (Review I Pictures). The expected dimensions for the device are 4mm x 17mm x 2mm. According to the blog, the 5th generation iPad is likely scheduled for a March 2013 release.

Furthermore, the blog's sources indicate that Apple is also amidst a production trial of the 2nd generation iPad mini. The 7.9-inch tablet is expected to feature a 2048x1536 pixel Retina display translating into a 326ppi pixel density and will likely carry on board the A6X chip as seen in the fourth generation iPad.

It's evident that Apple has picked up pace on the tablet front, proof of which we first witnessed this year with the launch of the 4th generation iPad in October, a move which came just six months after launching a new model, doubling the speed of the processor.

The new fourth generation iPad features a 9.7-inch Retina display, new Apple-designed A6X chip, FaceTime HD camera and ultrafast wireless performance with same 10 hours of battery life.

Coming to the iPad mini, it was introduced at a special event in San Jose, California on October 23rd (Pictures). The iPad mini features a 7.9-inch 1024x768  display, FaceTime HD and iSight cameras, ultrafast wireless performance and 10 hours of battery life.

The company sold three million iPads in just three days since the launch of its new iPad mini and fourth generation iPad. The number is double the previous first weekend milestone of 1.5 million Wi-Fi only models sold for the third generation iPad in March. So whether or not the next generation iPad and iPad mini create a similar effect is something that we'll keep an eye for.