Apple posts record sales, but investors aren't impressed

Shares dive cuts $50bn in value despite Apple posting record sales and profit

24 Jan 2013

Apple lost $50bn off its market value after it missed revenue forecasts for the third straight month - despite posting record iPhone sales.

Apple said it shipped a record 47.8 million iPhones in the December quarter, up 29% from a year earlier - but behind the 50m analysts had expected. It shipped 22.9m iPads, up from 15.4m a year ago, but Mac sales were down by more than a million, to 4.1m in the quarter.

First-quarter revenue rose 18% to a record $54.5 billion, below the average analyst estimate of $54.73 billion, while profit was $13.1bn, another record. However, shares of the world's largest tech company fell 10% to $463 in after-hours trade, wiping out value worth HP and Dell combined.

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.

"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."

You can't just keep rolling out iPhones and iPads and think that everybody needs a new one

Apple is forecasting revenue of $41 billion to $43 billion in the current, second fiscal quarter, behind the average Wall Street forecast of more than $45 billion.

Innovation worries

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.

"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, a $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.

Production rumours

In an unusual move for Apple, which typically does not respond to speculation, Cook addressed the production cutback rumours at length, questioning the accuracy of reports on its plans to cut orders with 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.

"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 the iPad was cannibalising its high-margin computers, but said it was a huge opportunity for the company to take overall share away from Microsoft.

"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 cannibalising some."

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