- The Tech Night Owl — Cutting-Edge Tech Commentary - https://www.technightowl.com -

The Apple Earnings Report: Two Out of Three Ain’t Bad!

The naysayers have been after Apple for months, and that, rather than flagging sales, is probably largely responsible for the company’s stock price woes. Ahead of this week’s announcement of June quarter financials, the stock price dropped yet again. Clearly Wall Street expected more bad news.

At the end of the day, Apple met their guidance for the quarter, both revenue and gross margins, but at the same time sales growth was tepid compared to last year. So Apple reported revenues of $35.4 billion, a slight increase over 2012’s results of $35 billion. But profits fell from $8.8 billion, or $9.32 per diluted share, to $6.9 billion, or $7.47 per diluted share. I suppose you can’t criticize Apple for delivering accurate predictions. Indeed, the stock price soared in after-hours trading.

Apple’s guidance for the current quarter includes revenue between $34 billion and $37 billion, and gross margins yet again between 36 percent and 37 percent. But that may be nothing to worry about, considering that Apple will apparently be in the process of introducing a number of new products late in the quarter, along with iOS 7 and OS X Mavericks. All right, the latter two are only promised for fall, which could mean they could slip to the December quarter.

Actual sales were a mixed bag. A surprising 31.2 million iPhones were sold,  compared to 26 million in last year’s June quarter. That number, presaged by high iPhone sales at AT&T and Verizon, was several million above analyst estimates. But Apple missed on the iPad, with 14.6 million sold, compared to 17 million last year. Before you suggest the iPad is failing against Android competition — and the Microsoft Surface hasn’t gone anywhere — don’t forget that last year’s sales were boosted by the introduction of the third generation iPad. This year, it’s nine months since the fourth generation iPad and iPad mini were released, so you expect demand to cool.

Apple also reported that iPad channel inventory was drawn down to 1.9 million units during the June quarter, which supposedly accounts for 80% of the decline in iPad shipments. As usual, Apple wasn’t asked why during the quarterly conference call with financial analysts. I suppose it could be the result of switching production over to new models.

One piece of really good news was the announcement that 660,000 iPads were sold to the Los Angeles school system. This is just the latest in a series of reports about educational systems jumping on the iPad bandwagon.

Moreover, Apple CEO Tim Cook did reveal that the iPad accounts for an amazing 84 percent of tablet-based Web traffic. Once again, Cook dug it into the other tablet makers, saying “If there are lots of other tablets selling, I don’t know what they’re being used for. Because that’s a pretty basic function, is web browsing.”

As to Apple’s iPhone business, they reported that the iPhone 5 remains the most popular model so far, although there was no actual breakdown in sales proportions compared to the iPhone 4 and iPhone 4s, both of which are still seeing good sales long after they became yesterday’s news.

But what about the Mac?

Well, Mac sales declined 7 percent to 3.8 million. But, compared to the global PC market, this wasn’t so bad. Apple actually gained share, because the overall market contracted 11 percent. Although being pleased with what they called the strongest launch of a new MacBook Air, its June arrival meant that the improvement in quarterly sales was less than it might otherwise have been. When it comes to the current quarter, the predictions so far suggest we won’t see any new Macs until August at the earliest, and possibly later.

In large part, Apple seems to be mostly treading water, since the promised major product introductions aren’t due until the fall. So if Apple doesn’t deliver on great sales for the latter part of the September quarter and the December quarter, the skeptics will feel somehow vindicated. Still, the iPhone is still showing unexpected strength long after the release of the most recent model.

Meantime, if you want to probe the numbers in more detail, you’ll find them on Apple’s site.

One thing is clear from Apple’s financials, and it’s that the company is not suffering near as much as Microsoft from the slowdown in PC sales. With a new version of OS X and some more new Macs expected this fall, including a totally redesigned Mac Pro, it’s hard to be bearish about the platform. If anything, sales might actually be better than expected.

But there’s no denying the fact that the PC has passed its peak, and that it will be mostly downhill from here. Perhaps Mac sales will decline at a slower rate, or remain flat, but Apple is probably not going to see huge sales increases from here on. It’s also clear that the iPhone has plenty of life left, despite Samsung’s apparent success. Lest we forget, the Galaxy S4 smartphone hasn’t been the barn burner it was expected to be. Maybe that’s one reason why Samsung might be continuing to talk with Apple over patent infringement issues. If smartphone sales are troubled, Samsung could still earn a bundle from Apple from component sales, and that’s a great incentive to settle.