The tech juggernaut that revolutionized the consumer electronics industry is showing signs it is running out of steam.
Apple Inc., the corporate world's most remarkable growth story over the past few decades, posted earnings on Wednesday that mark a stunning turn toward a new period of uncertainty.
Once routinely expected to demolish analyst expectations, the iPhone maker posted merely average quarterly results on Wednesday, sending its share price tumbling more than 10 per cent in after-hours trading. But beyond the headline numbers, investors appear particularly worried that the same iPhones and iPads that revolutionized the mobile electronics industry have lost some of their lustre, and that a barrage of competitors' products will take a growing toll on future earnings.
For the quarter ending Dec. 29, 2012, Apple posted revenue of $54.5-billion (U.S.) and profit of $13.1-billion, or $13.81 per diluted share. Both numbers were new records and were almost exactly in line with average analyst expectations. But investors were nonetheless spooked by several other aspects of Apple's earnings results. Primarily, the company's gross margin took a significant hit, dropping to 38.6 per cent, compared with 44.7 per cent during the same period last year.
At least some of that decline is likely a result of what Apple chief executive officer Tim Cook described as the company's recent "prolific period." In recent months, Apple has released myriad flavours of its iPhone, iPad and Mac lines, either by changing screen size, hardware specifications or price point. That strategy is largely a response to the wide variety of products offered by Apple rivals such as Samsung Electronics Co. Ltd.
But the slew of products has taken a bite out of margins.
"In the last few months, we have introduced new products in every category we make," Mr. Cook said.
Mac sales also dropped more than 20 per cent from the same quarter a year earlier.
For years, Apple's success in the mobile market was believed to contribute to a "halo" effect, enticing iPhone and iPad buyers to also make their next desktop computer an Apple product.
But declining Mac sales would seem to indicate that Apple's mobile device consumers aren't very interested in buying desktop computers of any kind.
Apple's guidance for the
coming quarter, while traditionally conservative, also showed some warning signs, coming in at the low end of analyst expectations.
The company did not give EPS guidance, but according to RBC Capital Markets analyst Amit Daryanani, the implied EPS based on average margins estimates would put the number somewhere around $8 – analysts had expected EPS of about $11.70.
The company now plans to change the way it offers guidance – instead of single numbers, it will now provide a range.
After flirting with the $700 mark in mid-September, Apple's share price has been on a steady downward trajectory.
By Wednesday evening, Apple shares were trading at about $463 – a level last seen in early February of last year.
Still, by the standards of almost any other company, Apple's numbers would not have been a disappointment. Sales of the iPhone and iPad lines were up 29 and 49 per cent year-over-year, respectively.
The company also saw its most significant sales growth in China, a massive market that many of Apple's competitors have yet to fully exploit.
Mr. Cook also indicated that Apple has a number of new product updates scheduled for the coming quarters.