Apple underwhelms in Q3 but hints at new things to come

Faith Merino · July 23, 2013 · Short URL:

Apple came in a shade above investors' estimates while hinting at new products in the fall

Welp. Looks like Apple has delivered on its promise to underwhelm this quarter. The company posted its third quarter earnings Tuesday afternoon after the close and revealed that…yeah, it’s about as bad as we thought.

The company revealed that it generated a quarterly net profit of $7.47 per share on revenue of $35.3 billion, which is a hair above the $7.32 per share on revenue of $35.01 billion that analysts were anticipating. But that’s not much to rejoice over, since Wall Street was low-balling estimates. Altogether, earnings have remained flat compared to Q3 2012, when Apple made $9.32 per share on revenue of $35 billion. Gross margin came in at 36.9%, compared to 42.8% in Q3 2012.

Nevertheless, investors remain confident. Apple shares popped 3.58% in after-hours trading to $434 from $418 at the close.

It’s possible investor confidence may have been buoyed by strong iPhone sales. Apple sold 31.2 iPhones in Q3 2013, compared to 26 million in Q3 2012.

IPad hasn’t been so lucky. The company sold 14.6 million iPads in the June quarter, compared to 17 million in the same quarter last year. To be fair, Apple had debuted its third generation iPad in March 2012, so that would account for stronger sales.

“From what Peter and I expected, we hit at mid-point of the range we expected in iPad sales,” said Tim Cook in Tuesday’s earnings call. “The most recent data I’ve gotten on iPad Web share data shows that through the quarter we’ve accelerated further, and iPad now represents 84% of Web traffic from tablets. If there are lots of other tablets that are selling, I don’t know what they’re being used for, since that’s a pretty basic function.”

(I like Sassy Tim Cook.)

And it looks like the coming school year will be even more promising for iPad sales. The Los Angeles Unified School District plans to distribute iPads to all of its classrooms, covering 660,000 students. Additionally, when Maine classrooms were allowed to select the devices they wanted to use, 93% chose Apple devices.

When asked whether he was concerned about speculation that the iPhone has reached a saturation point, Tim Cook waived it off.

“I don’t subscribe to the common view that the higher end—if you will—smartphone market has hit its peak. I don’t believe that, but we’ll see and we’ll record our results as we go along,” said Cook.

That comes up against new data from Consumer Intelligence Research Partners that shows that lower priced legacy iPhones are representing a greater proportion of iPhone sales. The iPhone 4 accounted for 18% of all shares in the June quarter, which is up from 14% in the previous quarter, while the iPhone 5 represents only half of all iPhone sales. That contrasts with the iPhone 4S, which accounted for three-quarters of all iPhone sales nearly a year after launch.

But analysts have been saying for months now that Apple is going to close the year on a high note—after posting a dismal June quarter. CFO Peter Oppenheimer hinted at new products in the fall, which should reboot investor confidence. 


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