Apple shares fell after lower sales forecast

Apple reported flat profits for its first fiscal quarter ending December 28th, 2013. While revenue at $57.6 billion and profits at $13.1 billion ($14.50 per diluted share) were higher than analysts had expected, the company warned that sales outlook for 2014 were not good. Consequently, Apple shares fell 9% in after-hours trading.

In the same quarter one year earlier, Apple had registered $54.5 billion in revenue and an identical net profit of $13.1 billion ($13.81 per diluted share). Gross margin in this last quarter was 37.9%, compared to 38.6% in the same quarter twelve months before.

During fiscal Q1, Apple sold 26 million iPads, an all-time quarterly record, 51 million iPhones, and 4.8 million Macs. In the same quarter in 2012 it had sold 22.9 million iPads, 47.8 million iPhones, and 4.1 million Macs.

Lower than expected Christmas sales

Analysts had expected iPhone sales to reach about 55 million during the Christmas holiday period. They say the lower-than-expected result reflects fierce competition from its arch-rival Samsung Electronics.

Apple’s CEO, Tim Cook, said:

“We are really happy with our record iPhone and iPad sales, the strong performance of our Mac products and the continued growth of iTunes, Software and Services. We love having the most satisfied, loyal and engaged customers, and are continuing to invest heavily in our future to make their experiences with our products and services even better.”

Apple’s CFO, Peter Oppenheimer, said:

“We generated $22.7 billion in cash flow from operations and returned an additional $7.7 billion in cash to shareholders through dividends and share repurchases during the December quarter, bringing cumulative payments under our capital return program to over $43 billion.”

Analysts thought the China deal would boost sales this quarter

Apple says it expects revenue during this quarter (second fiscal quarter) of between $42 billion and $44 billion, less than the $46 billion Wall Street had expected.

The market had expected that the current quarter, also known as the ‘March quarter’, would have been a bumper one because of the China Mobile deal and the initial launch in that region. Lowering the forecast is a troubling sign.

In an interview with Reuters, Brian Colello, an analyst at Morningstar Inc., said “The report for the December quarter was fine, but the real problem is the forecast for the March quarter. The revenue certainly appears to be a shortfall.”

The China deal has been forecast to push up sales by at least 11 million iPhone in 2014.

What about Apple’s new products for 2014?

Tim Cook promised today, as he has been doing so recently, that Apple will come out in 2014 with products in completely new categories. While it is obviously still early days, nobody outside the company has any idea what these products might be. Could it be a watch, some wearable device, a payments service, a TV, or perhaps something totally different?

A 9% drop in Apple shares in after-hours trading means a loss of over $45 billion in the company’s market value. If the combination of slower growth and no clear sign of new products persists, many predict the company’s stock price will continue to fall.

Apple has been the pioneer of new tech products for many years. Today, however, other companies are coming out with innovative Apple-like products. Perhaps that is a good thing, as Robert Hof wrote today in Forbes “A tech industry overly dependent on one company means an overly volatile tech industry.”

Apple’s figures have depended on iPhone sales for several years. However, the company today is facing growing competition from Samsung and others at the high end of the market.

Unlike Samsung, Apple does not dominate in the low end of the market. As more smartphone sales come from China and emerging markets that is a serious concern. In those markets Huawei and ZTE make popular and much cheaper phones.

Apple is not alone in facing a more difficult smartphone market. Last week, Samsung reported its first operating profit fall in eight quarters. Samsung also warned that its mobile business will be weak during the first half of this year.