Apple’s First Quarter Financials: Still Not Good Enough

January 28th, 2014

So Apple generated record revenue and profits, not to mention record sales for the iPhone and the iPad, during the company’s fiscal first quarter. That’s what is generally considered to be the holiday quarter for 2013. But it wasn’t enough to impress Wall Street, which explains a sharp dip in the company’s stock price in after-hours trading once the financials were released.

The biggest issue, as usual, is the fact that Apple still missed Wall Street expectations. So revenue was $57.6 billion, with a profit of $13.1 billion, or $14.50 per diluted share. This compares to revenue of $54.5 billion and a net profit of $13.1 billion in the year-ago quarter.

But the Street expected revenue of $58 billion, so I suppose that’s a huge negative. Worse was the report that “only” 51 million iPhones were sold, compared to 47.8 million last year. But expectations called for sales closer to 56.5 million. Yahoo! Finance, for example, ran a story suggesting iPhone sales were “weak” despite being somewhat higher than last year. Other headlines used the word “disappointing.”

Of course, such estimates are seldom grounded in reality, but you get the picture.

Apple’s response during the quarterly conference call with the financial community indicate that it took awhile to get enough iPhone 5s supplies to meet demand. This implies that Apple expected to sell more of the iPhone 5c, which may confirm reports of less-than-stellar sales of the plastic cased iPhone. Later statements about the “demand mix” not being what Apple expected clearly confirmed this view. So this situation, and the time it took to switchover production to deliver more copies of the iPhone 5, may have reduced the sales totals somewhat.

In his comments in response to questioners, Tim Cook also pointed to the fact that the Touch ID and other unique features of the iPhone 5s may have attracted more customers than expected.

So is the report from the Wall Street Journal, that the iPhone 5c and plastic iPhones in general will be history when the new models are announced later this year, based on their confirmation of the lower iPhone 5c sales? It is beginning to sound quite reasonable.

Looking at other numbers: Gross margins were 37.9 percent, compared to 38.6 percent in the year-ago quarter. That’s still way up there compared to other tech companies, but it’s still not enough for some of the key players in the financial industry who continue to expect Apple to adhere to higher standards than other companies.

Apple, however, did much better with the iPad, where the market expected sales of 24.5 million. The actual numbers were 26 million, despite constraints on supplies of the iPad mini with Retina display. This compares to sales of 22.9 million last year.

Macs? Well, 4.8 million were sold, up from 4.1 million last year, and above the 4.6 million market projection. This is the highest number since the the fourth fiscal quarter of 2012. So much for the claims from the recent IDC survey of flagging Mac sales. Of course, last year’s sales were lower because of Apple’s inability to get enough iMacs out the door, but it’s also true that the Mac Pro barely left the factory in Austin, TX at the end of 2013, so it’s possible sales would have been at least somewhat higher if production ramped up a month or two earlier.

As you probably realize, though, the financial prognosticators expected better results from the iPhone, even though Apple is selling more high-end smartphones than Samsung, which is actually having problems selling the Galaxy S4 series.

For this quarter, Apple has released guidance for revenue between $42 billion and $44 billion, with gross margins between 37 percent and 38 percent. Since this is lower than last year, the Wall Street freakout will continue. Apple’s answer is that it took longer to ramp up production for the iPhone 5 last year, and that’s true for the iMac, because it was largely unavailable in the 2012 holiday quarter.

And I haven’t bothered to include additional billions of dollars in deferred revenue now that OS X, iLife and iWork are all free. So Apple really did much better if you don’t consider the accounting procedures.

Now compared to the usual slow rollout of Android updates, some 80% of the iOS gear still in service is running iOS 7. Yes, I realize there are still bugs, and some interface glitches. But nobody forced anyone to install those OS upgrades, so it does appear that acceptance is excellent. There are also published reports of a forthcoming iOS 7.1 update that will fix the usual spate of bugs and apparently offer some interface changes or improvements. So we’ll see.

So much for the numbers. If you’re still curious about Apple’s performance, you’ll find plenty to chew over in Apple’s press release, and industry analysts will be offering their own interpretation. But expect the meme that Apple is doomed to continue without letup. The small misses compared to those arbitrary financial community projections guarantee that.

In response to the inevitable question about new product categories, Tim Cook gave the usual non-answer that they are working on new things and customers will be absolutely delighted with them once they are released. I didn’t expect Cook to say more about future gear, and I realize the question has to be asked. But it is getting a little boring. With Apple, you’ll know when the rumors hit a fever pitch ahead of the actual product intros.

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One Response to “Apple’s First Quarter Financials: Still Not Good Enough”

  1. Articles you should read (Jan. 28) …. says:

    […] “Apple’s first quarter financials: still not good enough: So Apple generated record revenue and profits, not to mention record sales for the iPhone and the iPad, during the company’s fiscal first quarter. That’s what is generally considered to be the holiday quarter for 2013.” — Read the article on > […]

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