Though Apple made $8.8 billion in net profits last quarter, the numbers were less than expected and Apple stock took a 5 percent dive in after-hours trading following the earnings report.
Apple’s revenue and profits were higher than this time last year, but more than 5 percent shy of what some expected. Apple’s third quarter revenue was $35 billion or $9.32 per share. Bloomberg had previously projected $37.22 billion in revenue or $10.37 per share. This is only the second time since 2003 that Apple has failed to meet its earnings expectations.
Many analysts point to sluggish sales of the iPhone as the main culprit for the less-than-expected earnings. Though the 26 million iPhones sold this quarter is 28 percent more than last year, the company was expected to sell 2-3 million more phones. Speculation on the next iPhone release may keep some from buying a current iPhone4s.
“Every quarter that Apple isn’t launching a new iPhone it’s a transition quarter,” Brian Marshall, an analyst at ISI Group, told Bloomberg. “That’s the key product that matters.”
Apple is also facing difficulty on an international front. Aside from the economic downturn in Europe, Apple is facing reduced interest in their products in China, Apple’s second largest market. The long awaited launch of the iPad 3 in China, which had been delayed due to legal issues, didn’t produce nearly the amount of fanfare it did in the U.S (though this is partially due to a new reservation system).
Apple sales in Greater China are down $2.2 billion from the previous quarter. Sales of the iPhone 4s in China are sluggish even though the model was released only a few months ago.
“We’ve been seeing a lot of (Chinese) consumers holding off waiting for the iPhone 5 as opposed to (buying) the iPhone 4S,” said Ben Cavender, associate principal at China Market Research, in an interview with the Wall Street Journal.
In an interview with Reuters, a China-based research analyst suggested that Apple products may be losing some of their status as the must-have accessory of the hip and affluent.
“The (iPhone 4S) model is a little bit too long in the tooth when compared to other phones with better specs,” said TZ Wong, a Beijing-based analyst from research firm IDC.
“To put it plainly, consumers are getting a little bit tired of the look of the iPhone 4 and the iPhone 4S.”
Apple release schedule is often cited as a factor in the company’s sluggish mid-year sales. Most of Apple’s rivals, like Samsung produce several phone models each year.
“Pressure is mounting,” said Michael Obuchowski in an interview with the San Francisco Gate. Obuchowski is a portfolio manager at North Shore Asset Management LLC, an owner of Apple shares. “Because everybody else has a much faster design cycle, Apple has to come up with a new phone that’s competitive not just when it comes out, but will stay competitive for a long period of time. That’s going to be increasingly difficult.”
Apple has seen an increase in sales of its popular iPad tablet computer. Apple sold a record 17 million iPads, though analysts had expected the company to sell 15.4 million units.
Apple Profit and Sales Fall Short
Apple’s quarterly earnings fell short of analyst expectations, likely due to consumer restraint ahead of the rumored iPhone 5.