Apple iPhone Sales Beat Expectations, But iPad Falls Short

Investor's Business Daily

Apple (AAPL) late Tuesday comfortably beat Wall Street estimates for sales and profit last quarter, selling more iPhones than expected but missing with iPad sales.

Apple earned $7.47 a share for its fiscal Q3 ended June 29, down 20% from the year-earlier quarter but topping analysts' forecasts by 15 cents. Sales rose nearly 1% to $35.3 billion, vs. the consensus target of $35 billion from analysts polled by Thomson Reuters.

Apple sold 31.2 million iPhones, compared with consensus estimates for 26 million units, which is how many it sold in Q3 2012. IPad sales fell 14% to 14.6 million units from 17 million, below Wall Street's target of 18 million tablets.

Apple sold 3.8 million Mac computers, down from 4 million.

The Cupertino, Calif.-based company's gross profit margin fell to 36.9% from 42.8%, but analysts had expected 36.6%.

Apple shares were up 3.5% in after-hours trading following the earnings news release. During the regular session Tuesday, Apple fell 1.7% to 418.99.

'Vibrant Ecosystem'

"We're pleased with our record June-quarter iPhone sales, the strong growth in revenue from iTunes software and services, and the continued enhancement and popularity of our tremendously vibrant ecosystem," Apple CFO Peter Oppenheimer said on a conference call with analysts. "We are very excited about the upcoming releases of the stunning new iOS 7 and OS X Mavericks (software) and we are very hard at work on some amazing new products that we will introduce in the fall and throughout 2014.

For the current quarter, Apple expects revenue of $35.5 billion, vs. Wall Street's target of $37.11 billion, up 3%. Apple historically gives conservative guidance. It's modeling for a gross margin of 36.5%. Its guidance translates to earnings per share of roughly $7.20, where analysts were looking for $7.96, down 8%, says ISI analyst Brian Marshall.

"We view (Apple's) June-quarter results and September-quarter guidance as largely as expected, with better iPhone sales and worse iPads," Piper Jaffray analyst Gene Munster said in a research note Tuesday. "Since we continue to view iPhones as the most important part of the story, we view the overall report as slightly better than expected. Nothing about the report itself changes our belief that the key factors on the stock are the expected cheaper phone in the fall as well as the potential TV announcement late this year and an iWatch in 2014.

Mum On New Products

Apple executives declined to discuss rumored new products, except to give their usual wait-and-see quotes. "We're on track to have a very busy fall," Oppenheimer said.

Among the new products Apple is rumored to have in its pipeline are the iPhone 5S, its next flagship handset; the iPhone Lite, a low-cost smartphone for developing markets; an Apple television set; and a wrist computer called the iWatch.

On the call, Apple CEO Tim Cook responded to reports that the high-end smartphone market is saturated.

"I don't subscribe to the common view that the higher end of the smartphone market is at its peak," Cook said. Apple's iPhone sales are still growing strongly, and the business has big opportunities still in enterprise sales and expanded distribution channels, he said.

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