Apple misses Wall Street expectations

26 Oct 2012, 10:52 am   -   Source: AAP
In part, the issues facing Apple are a normal consequence of having so many new products, said CFO Peter Oppenheimer. When a production line is new it costs more to run. (AAP)

In part, the issues facing Apple are a normal consequence of having so many new products, said CFO Peter Oppenheimer. When a production line is new it costs more to run. (AAP)

Apple has missed analysts' expectations for the second period in a row and says the launch of new products will drag down next quarter's profits.

Apple has a new iPhone, two new iPads and three new PCs as it heads into biggest-selling season of the year. But, paradoxically, it expects these new gadgets to bring down its profits.

The reason: the new gadgets are expensive to make, said Apple's chief financial officer late on Thursday after the company reported earnings for the most recent quarter that missed analysts' expectations for the second straight quarter.

In part, the issues facing Apple are a normal consequence of having so many new products, said CFO Peter Oppenheimer. When a production line is new it costs more to run.

Oppenheimer singled out the iPad Mini, the new, smaller version of the iPad. It starts at $US329 ($A319) in the US, well above the $US199 competitors charge for similar products. Apple's price is "aggressive", with a margin well below other products, Oppenheimer said.

"When we set out to build the iPad Mini, we didn't set out to build a small, cheap tablet. We set out to build a smaller iPad that offered the full iPad experience" Oppenheimer said.

Apple expects a gross profit margin of 36 per cent in the current quarter, the lowest figure in at least four years. In the holiday quarter last year, its gross margin was 44.7 per cent.

The gross margin represents what Apple gets from selling its products, minus the cost of making them. It ignores the cost of research and development, marketing and corporate overheads.

CEO Tim Cook justified the projected profit drop to Wall Street in similar terms.

"We're unwilling to cut corners in delivering the best product experience in the world," he said. "We're managing the company for the long run."

Apple launched the iPhone 5 a month ago. This week, it unveiled the iPad Mini and an upgraded full-size iPad, plus a new MacBook laptop and two desktop Macs.

Apple said it expects earnings of $US11.75 a share in the holiday quarter, below the $US13.87 a share it earned in the same period last year. Apple routinely lowballs its estimates, but this time the forecast was further from the analyst estimate than usual. Analysts polled by FactSet were expecting earnings of $US15.59, on average.

Apple expects sales of $US52 billion, roughly in line with the analyst expectation of $US56 billion, considering the company's conservative forecasts.

Apple shares fell $US6.33, or one per cent, to $US603.47, extending a downward trend for the stock, which hit an all-time high of $US705.07 a month ago, on the day the iPhone 5 went on sale in the US and eight other countries.

Apple reported its results as Microsoft was set to launch Windows 8 on Friday, along with its first tablet computer, the Surface.

Cook said that while he had not used the Surface himself, he gathered from reviews that it was a "fairly compromised, confusing product" that tries to do too many things. Part of Microsoft's message is that the Surface will double as a laptop. It's including a full version of its Office suite on the product and will be selling covers that act as keyboards.

"I suppose you could design a car that flies and floats, but I don't think it would do all of those things very well," Cook said.

For the just-ended quarter, Apple missed Wall Street earnings expectations as iPad sales fell short of analyst forecasts.

The slowdown in the growth of iPad sales was not completely unexpected, as the rumour mill correctly predicted Apple would launch the iPad Mini. Cook said there's usually a slowdown in the September-ending quarter, and the 14 million iPads sold exceeded Apple's forecast. Analysts, however, had been expecting 17 million to 18 million.

Sales were also hurt by slowing growth in China. Apple's sales in China more than doubled in fiscal 2010 and in 2011. Growth in the July-September quarter was also slow in economically troubled Europe.

Net income in the fiscal fourth quarter was $US8.2 billion, or $US8.67 per share. That was up 24 per cent from $US6.6 billion, or $US7.05 per share, a year ago.

Analysts polled by FactSet were expecting earnings of $US8.84 a share.

Revenue was $US36 billion, up 27 per cent from a year ago. Analysts were expecting $US35.8 billion.

The company sold 26.9 million iPhones in the quarter, at the high end of expectations. The launch of iPhone 5 came late in the quarter and didn't move the needle much.

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