Thursday, October 25, 2012

Apple reports earnings that disappoint analysts, but iPad sales may be the area of biggest concern going forward

It not often that a company reports record profits and revenue and gets hammered for its performance. Apple today said that it had generated $10.944 billion in operating income, versus $8.710 billion the year before. Revenue, too, increased to $35.966 billion, a 27 percent increase.

But Apple said it sold 14 million iPads in the quarter, and while that number is also up, it leaves the company short of the 100 million mark Tim Cook said the company achieved when it rolled out the iPad mini. Obviously the Apple CEO was counting sales already achieved in this quarter.

(It should be noted that not one analyst came anywhere close to getting iPad sales right. Each wildly overestimated sales, then scrambled to lower their estimates following the iPad mini launch event. Nonetheless, each continued to be wrong, showing the amount of stock pumping that continues in the financial markets.)

Q4 is not a particularly great quarter for Apple's tablet sales as it follows the launch that occurs in Q3. But this is the first Q4 where iPad sales are actually below the previous quarter, a troubling sign.

Sales may have been impacted by the launch of new Kindles, or it may be a sign that the market is maturing. It may also serve to explain why Apple chose to refresh the iPad this quarter rather than wait until after the holidays.

iPhone sales, though, are a bright spot, with sales of 26.9 million units, a 58 percent growth over the prior year. Not surprisingly, iPod sales are down 19 percent, as many users are phasing out use of the device in favor of their smartphones.

Mac sales only grew 1 percent, though one should be reminded that many PC makers are seeing declines in sales overall. Nonetheless, the slow pace of growth here has to be disappointing as Apple has been steadily taking market share in this area.

Unlike Amazon, Apple's guidance is pretty precise: "Looking ahead to the first fiscal quarter of 2013, we expect revenue of about $52 billion and diluted earnings per share of about $11.75," said Peter Oppenheimer, Apple’s CFO in the company's earning statement.

Apple cash currently stands at $121.3 billion.