The Apple Financials Report: Waiting For the Next iPhone

July 25th, 2012

All right, so Apple doesn’t walk on water. The company is not immune to the state of the world economy, nor to the impact of customers waiting on the sidelines in anticipation for a new model that may not ship until October.

When you add such conditions up, it explains, in part, why Apple missed Wall Street’s expectations for the June quarter. On the surface, the numbers seemed pretty good, except for slow Mac growth. You might attribute that to the fact that the new MacBook Air and MacBook Pro lineup didn’t arrive until the second week of June, and other models still await significant refreshes.

So for the quarter ending June 30, 2012, Apple reported revenue of $35 billion, with a net profit of $8.8 billion, or $9.32 per diluted share. Compare those results to last year’s numbers, which totaled $28.6 billion revenues and a net profit of $7.3 billion, or $7.79 per diluted share. Such an increase would seem good enough for any company, but Apple’s stock price dipped 5% in after-hours trading, because Wall Street expected the company to post earnings averaging $37.22 billion.

The main problem appears to be the supposed lackluster sales growth of the iPhone. Apple moved 26 million, representing 28% growth over last year, but Wall Street had hoped for better. At the same time, more and more stories have surfaced about the iPhone 5, perceived as a major upgrade with a larger screen and other niceties, including LTE support. Since most iPhone customers have to commit to two-year contracts with wireless carriers to keep the purchase price at an affordable level, they may be taking pause and waiting for something better. This situation mirrors that of the September 2011 quarter, where iPhone sales also missed expectations in anticipation of a newer model.

At the same time, sales of the iPad continue to overwhelm the competition, with 17 million sold last quarter, an increase of 84% over last year. That number appears to have exceeded many analyst expectations. And, now, with rumors growing about the possibilities of an iPad mini this fall, the window of opportunity for Apple’s competitors seems to be closing fast. Maybe it’s another iPod phenomenon in the making.

As to iPods, 6.8 million were sold. About half of the sales were registered for the iPod touch. This is a 10% decline over last year, but few are surprised by the gradual erosion of the iPod, which still towers over other music players. Apple also sold 4 million Macs, a mere two percent sales increase over last year, likely due to the late arrival of model refreshes. But that still beats the overall PC industry, where sales for many companies have dipped.

I won’t dwell too heavily on the rest of the numbers. You can find a lot more information at Apple’s site.

During the quarterly conference call with financial analysts, Apple CEO TIm Cook basically agreed that rumors about the next iPhone may have had a “reasonable amount” of impact on current sales. If this is true, the figures for the September quarter may also be tepid unless, of course, the iPhone 5 arrives in September, as some are suggesting.

This doesn’t necessarily mean it won’t happen. I wouldn’t be surprised if Apple took a close look at sales projections during the quarter, and began to make appropriate decisions to restore sales luster. But the premature release of a new product that may not be ready for public consumption would be the wrong approach. The smartphone market is too hotly contested to take chances on the one-and-only iPhone intro for the year.

Part of the problem is one of perception. Apple cannot slow the rumor train. Almost as soon as an iPhone 5 — or whatever it’s called — appears, there will be rumors about what form an iPhone 6 might take. Will it have an even larger screen, 3D without the glasses; will it cook your dinner?

Clearly, there are expectations for lots of Apple products over the remainder of this year. Wednesday morning signaled the arrival of OS 10.8 Mountain Lion, meeting predictions that it would hit the Mac App Store the day after Apple’s financials were announced. It’s not at all clear, though, how quickly other Macs might be updated. Both the Mac mini and the iMac are getting a tad long in the tooth, what with Intel releasing new chips several months back.

While Apple wouldn’t admit to any new product initiatives during the quarterly conference call, which is to be expected, there are still growing expectations that the iPad will get a little brother (or sister) with a 7.85-inch screen. It has been dubbed the iPad mini by the media, though it could be an iPad nano I suppose. I read a few reports that the third generation iPad could receive a minor refresh to address perceived heat problems and to make the unit a tad slimmer and lighter. But Apple doesn’t tend to make in-line product changes of that sort.

The other question is whether Wall Street might just be getting a little overconfident about Apple, and when the company misses projections, the stock price is dinged accordingly. Perhaps this is one quarter that will help financial analysts take a more realistic view of Apple’s prospects.

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2 Responses to “The Apple Financials Report: Waiting For the Next iPhone”

  1. DaveD says:

    I can recall the NASDAQ tech bubble that was inflating rapidly in the late 90’s. There were too many stories of companies losing money hand-over-fist and the value of their stock kept going up. Made no sense to me as I listened to the explanations from the analysts of Wall Street.

    In my simple view of a successful company, there are only two very important items, revenues and profits. Apple did better in both areas than the year before in the amounts of billions of dollars. Logically, this is an excellent sign of a very successful company.

    I guess logic doesn’t exist in Wall Street, just a bunch of wishful thinkers.

  2. Shameer Mulji says:

    “I guess logic doesn’t exist in Wall Street…”

    It never has. Building a business that will stand the test of time (or close to it) and benefits society requires a mindset completely devoid in Wall Street. Wall Street only cares about the next three months. It’s the largest parasite known to human-kind.

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