Apple shares pop 5.75%, investors gear up for new stuff

Apple hinted at some new products in the fall pipeline

Apple shares popped 5.75% to $443.10 Wednesday morning after a mixed Q3 report that revealed predictably low revenues but higher than expected iPhone sales. The company set its September guidance at $34-$37 billion and hinted at some new products in the fall pipeline.

“Revenue would more typically drop multiple billions if the company had no new products planned,” wrote BTIG analyst Walter Piecyk in a research note. “With September quickly approaching, this could be the start of a string of new product announcements that increase investor confidence in Apple’s ability to return to EPS growth next year.”

Piecyk notes that Apple’s September gross margin guidance isn’t changing from the June quarter, which means the new product could be a new iPhone, which wields a higher margin than the iPad.

Apple revealed Tuesday 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 5.25% in after-hours trading to $440 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.

“We believe the iPad needs to recover, as we expect this to be an important topic for investors,” said JP Morgan’s Mark Moscowitz in a research note. “For the stock to work, both iPhone and iPad need to be in growth mode at the same time, in our view.”

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. 

Image source: gizmorati.com