Apple Whiffs On Earnings After Coming Up Short On iPhone Sales

Tim Cook

Photo: AP

Apple numbers are out.It’s a rare miss for Apple, as the company whiffed on just about everything other than the iPad and iPod.

The stock is down 5% in after hours trading.

Here’s are all the key numbers compared to what the Street was looking for:

  • Revenue: $35 billion versus street expectations of  $37.1 billion
  • EPS: $9.32 versus street expectations of $10.36
  • iPhone: 26 million versus street expectations of 29 million
  • iPad: 17 million versus street expectations of 16 million
  • Gross Margin: 42.8% versus street expectations of 44%
  • Mac sales: 4 million versus street expectations of 4.1 million
  • iPod sales: 6.8 million versus Morgan Stanley estimate of 5.9 million
  • September quarter revenue: $34 billion versus street expectations of $38 billion
  • September EPS: $7.65 versus street expectations of $10.22
  • Apple’s cash on hand: $117 billion, up $7 billion from last quarter
  • iPhone ASP: $624 versus $647 last quarter

Apple always delivers comically bad guidance, but its next quarter’s guidance is particularly light compared to what analysts were looking for.

In the earnings release, Tim Cook said, “We’re thrilled with record sales of 17 million iPads in the June quarter.” He added, “We’ve also just updated the entire MacBook line, will release Mountain Lion tomorrow and will be launching iOS 6 this Fall. We are also really looking forward to the amazing new products we’ve got in the pipeline.”

Those “amazing new products” are widely believed to be a new iPhone and smaller iPad. The hope of those products will likely buoy the stock for the next few months.

What’s particularly crazy about this quarter’s earnings miss is that Apple just barely beat its own guidance. Typically it blows away its own guidance. Apple guided to $34 billion in sales and $8.68 in EPS last quarter.

More to come … click here for the latest.

We will be live blogging the earnings call which starts at 5 PM eastern.

4:57: We are on hold for the call.

5:01: Call is about to start… CFO Peter Oppenheimer, CEO Tim Cook, and Treasurer Gary Wipfler on the call.

5:03: Oppenheimer: New all time quarterly record for iPad. New June quarter record for iPhone. Revenue growth 23%. Increase driven by iPad and iPhone. Op margin 11.6 billion. Net income up 22% y/y at $8.8 billion.

5:04: New June qtr record for Macs at 4 million. Better than the global personal computer market. Updated entire MacBook line with faster processors. Also introduced new 15″ MacBook Pro with retina. Customer response excellent. Tremendous momentum for iPad in education. Also for portables. (Now he’s listing schools that bought MacBook Airs.)

5:05: Tomorrow we release Mountain Lion. 9th release of OSX. (Listing features.) Built iCloud into the foundation. Sold 6.8 mill iPods compared to 7.5 million a year ago. iPod Touch over half of all sold. Continues to be top selling mp3 player. Ended with 4-6 weeks of channel inventory.

5:06: iTunes revenue over $1.8 bill. Thanks to music, apps and other content. Continuing to see great interest in iTunes U. Over 14 million downloads. Over 125 universities/colleges. 750 new courses.

5:07: 26 million iPhones, 28% y/y growth. Ahead of what we factored into our guidance. Added several small carriers. Over 250 carriers in 100 countries. In target range of 4-6 weeks inventory. $16.2 billion in quarter, up 23% year over year.

5:08: iPhone at Fortune 500 has doubled year over year. PepsiCo has a specific app for its field managers. Ergo in-house iPhone app for agents. Sig reduced paper work.

5:09: iPad, thrilled with sales of 17 million, increase of 84% y/y. Saw strong growth around the world. $9.2 billion in iPad revenue, a 52% increase. Continues to be a success in education, over 1 million. While interest in new iPad high, sales of iPad 2 strong at K-12. Twice as many iPads sold as Macs to education.

5:10: (Talking about students using iPads.)

5:11: iPads in fortune 500 has tripled. Indispensable tool.

5:12: 410 million iOS sales cumulatively. 650,000 iOS apps. We are pleased to report, $5.5 billion in payments to developers. Customers love iCloud. Over 150 million using iCloud services. In June, we previewed iOS. (Listing features…) We believe iOS 6 will enhance experience of owning an [iOS] device.

5:13: $4.1 billion from retail stores, up 17% y/y. Store sold 791,000 macs. Half macs sold were to customers who never owned a Mac before. 372 stores. 123 stores outside of U.S. Average sales of $11.1 versus $10.8 million in year ago quarter. 83 million visitors, up 12%. 17,000 visitors per store per week.

5:14: Cash totaled $117.2 billion compared to $110 in q prior. about $81 bill offshore. Cash flow from operations is $10.2 billion. We have declared a dividend. Going forward subject to declaration, we expect to announce dividend concurrently with earnings. We also authorised a share repurchase program.

5:16: Forward looking … Revenue to be $34 billion. GM 38.5%. Expect OP EX $3.5 billion. $7.65 EPS target.

In closing, we’re happy with results. Confident in strategy. Excited to launch Mountain Lion tomorrow and iOS in the fall.


5:17: Katy Huberty: what’s with the super low GM? This is lowest in 2 years.

5:18: Oppenheimer: 38.5%. Decline by a fall transition. Less so from U.S. dollar. Full quarter of back to school.

5:18: Katy: Tim, macro concerns about China, and was a big Asia Pac decline.

5:19: Tim: The growth in Asia Pac was 25% vast majority was a result of greater China, which is 2/3 of rev of region. As we reported, rev was 7.9 billion in Q3 5.7 billion, 48% on a y/y basis. Virtually all $2.2 bill sequential decline due to iPhone sales in China. Due to changes in inventory not sell through. As a remind last quarter sold iPhone 4S in China. As we went across quarter increased channel inventory. Remainder of decline is normal seasonality after iPhone 4S launch. Didn’t see obvious impact we would associate with China. We see the press, but did not see something attribute to China economy.

5:21: Sales did not benefit from iPad sales in China. So, net, we remain confident about plans and oppty in China. Looking forward to incorporating more local services, as you saw at WWDC with iOS 6.

5:22: Bill Shope of Goldman: Individual segment trends?

Peter Opp: First I’ll talk about products, then revenue. For iPhone and iPad we expect a y/y increase. But point out we increased channel inventory for June quarter. We saw no evidence of economy in China impacting us. We are reading same things as you, so we’ll see.

5:23: Weekly iPhone sales affected by rumours and speculation. Regarding iPad, increase channel by 2.1 million. In 4-6 week target. Current IPad line up includes $399 will impact ASP. U.S. Dollar has strengthened against most currencies. We expect this to have adverse impact to revenue of $400 million. All that said, look forward to iOS 6.

5:25: Shope: Sequential iPhone demand?

Tim: As you look at Q2 to Q3, large channel inventory diff embedded in that. Completed iPhone 4S roll out. Also able to get channel in our target inventory range. What that did was increase sell in over sell through by 2.6 million units. In most recent, sell in less than sell through. Inventory change is about 3 million. Important to understand that to see underlying sell thru changes.

5:27: Mainland China up over 100%. Geography that didn’t perform well was Europe. Was essentially flat. Hampered total results. We see a marked diff btw countries. UK solid at 30%, but France, Greece, and Italy particularly poor. Germany Single digit growth for Q. Eastern Europe materially stronger than western, but western drives the revenue. Seeing slow down in business in that area. Fortunately China and U.S. balancing.

5:28: Ben: Fall transition what is impact on margin and revenue? How much comes back in December? How much short term?

Peter: Fall transition is driving decline in GM. Not something we will talk about in any level of detail. COuld not be any more confident in our new product pipeline.

Tim: I think there is a lot of speculation out there. It’s hard to sort out. There is an incredible anticipation for future products, as you would expect given what we’ve been able to deliver in the past.

5:30: Shannon Cross: Can you talk about Mac biz? Up 2% y/y, but slow growth. Cannibalization by iPad?

Tim: Clear PC market is weak. We think primary factor is the timing of our portable announcement in last q. We announce new portable lineup with less than 3 weeks in quarter. Selling new lineup in 3Q period. Prior to dev conference, running lower than prior year. After higher. Would attribute to timing of portable announcement.

5:33: Shannon: Carrier discussions?

Tim: Let me avoid talking about product transition. Don’t want to get into talks about carriers. Our role is to make the very best smartphone in the world superior to anything else. At the end of the day carriers want to provide customers with what they want to buy. For apple most important thing is to make most important phone.

From Carriers perspective, total subsidy is small relative to payment they collect. Many would tell you iPhone has advantages over other smartphones. Churn rate less. You see carriers on shared data plans. iPhone likely to have an iPad. They value these customers. Engineer teams sensitive to being efficient. Most efficient smartphones in app rich eco system.

5:36: Toni: Above expectations on iPhone, iPod, thrilled with iPad … you can say where disappointed.

Peter: Given what’s going on around us, we’re happy with our quarter. Sales did exceed guidance. iPad especially true. $35 billion revenue up by 6.5 billion y/y. Some things impacted: Economy in Europe. Impact in natural resource based economies. Australia, Canada, etc.

Speculation about new iPhone caused some pause in purchasing. rumours about new portables affect sales in April and May. Customers loving new MacBook pro. No benefit of new iPad in China or new portables in China as we pursue approval.

Finally, dollar strengthened, affect revenue by $200 mill. Very happy with business and pipeline.

5:38: Toni: Tim, can you talk about iPhone growth in emerging markets? I hear most (70%) are sold for under $300. Does that affect you? When does that maths prevent you from gaining share?

Tim: Specific data, 70% doesn’t map to what I’ve seen. Let me answer general question. We have been focused on China, as you know. Enormous oppty. Very pleased we could grow iPhone sales over last quarter. Believe people in emerging markets want iPhone. Stick to our knitting and make best products. If we do that, we have a great business ahead of us.

5:41: Tim: Our north star for company is to make the very best product. That overshadows everything. By doing that we think we’ll have a great business. Results today show that.

5:41: Andy: The comment on iPad just slightly within 4-6 weeks, suggest slowdown in sell thru.

Tim: Channel for indirect channel. Not to support direct sales, Apple retail, Apple online, Apple education. Don’t want a specific guidance, important to keep in mind. I know some companies call channel inventory in terms of gross inventory.

5:43: Andy: Price comp on iPad?

Tim: Repriced iPad 2 to $399, it did very well. Most popular is new iPad. But iPad 2 key in the K-12 area. Sold about 1 mill units there. Aggressive in that space.

In terms of competition. We’ve seen hundreds of tablets over last year. have yet to see any gain traction. We have over 225K apps for iPad. Incredible experience. Most customers not looking for tablet, just looking for iPad. Keep innovating in the space. Strong business going forward. 17 mill iPads up 85%. Shipped 84 million. Look at trajectory rate, took us more than 2X as long on iPod and achieved in 1/3 as much time as iPhone.

5:45: Gene Munster: What segments driving iPad? Any feedback?

Tim: We’re seeing thriple digit growth in many geographies. International market in aggregate are extremely strong, in triple digits. U.S. a bit lower. U.S. on faster adoption curve. Thrilled w numbers everywhere. Latin America tripling.

5:47: Gene: Apple TV numbers?

Tim: 1.3 million units up 170% y/y. We continue to pull string. A lot of believers in Apple TV. Don’t do hobbies to do hobbies, hope it can lead us somewhere. This 4 million (sold this year) is not a small number. A lot of believers in it.

5:48: Mark Moskowitz of JPM: ASPs have fallen for iPhone …

Peter: Driven by product rumours, economic conditions. For the iPad, it was down y/y ASP thanks to 4 things. High mix of low price models. Reduced price of iPad 2. With higher distribution, indirect dist. And dollar impact.

5:50: Mark: What about Passbook? Stepping stone to digital wallet?

Tim: Wouldn’t want to comment. Passbook in general, key feature. All found getting passes and tickets scattered all over iPhones in diff apps. Important feature, but wouldnt want to speculate about where it might take us.

5:51: Chris Whitmore: Lower iPad price drove elasticity? Incrementally higher? Did customers go down market?

Tim: Reason we did it because we thought incremental sales, elasticity. We think buyer wants best product, but needs it to be a little less expensive. Helping in K-12. Adoption in education, never seen in any tech product in history. Historically conservative. Not seeing that at all. Big help for us.

5:52: Tim: I love India, but I believe Apple has higher potential in intermediate in other countries. We have a biz there, biz growing. but multi layer distribution adds to cost. We will continue to put energies, but in intermediate larger optty elsewhere.

5:54: Shaw Wu: Question about component availability?

Tim: Supply factored into guidance. Don’t talk about new products. New iPad ended just over 4 week line, which we associated with 4-6 week channel inventory target.

5:56: Brian Marshall: How do you think about optty at lower price points with existing products?

Tim: Our North Star is to manically focus on making world’s best products. Economic turmoil may push us side to side, we won’t deviate. These type of periods where we distance from others that dont innovate. You’ve seen us on price with iPad 2, iPhone 3GS. North Star is best products in the world.

5:58: Brian Marshall: iPhone transition … how to manage?

Tim: We try very hard to keep our product roadmap secret. We go to extreme to do that. That however doesn’t stop people from speculating and will never stop that. Great thing about this country, people can say what they want and so forth. I’m glad people want the next thing. I’m super happy about that. Some people want we’re doing now, as evidenced by this quarter. Not going to try to stop people from speculating.


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