Apple results, second miss in a row

Apple missed expectations last evening, the company reported Fourth Quarter Results after the bell. A record September quarter, with revenue of 36 billion Dollars and profits of 8.2 billion Dollars, which in turn translated to basic earnings per share of 8.76 Dollars. A dividend of 2.65 Dollars per share was declared. Revenues were ahead of expectations, iPhone sales were ahead of expectations at 26.9 million units. That was an increase of 58 percent over the corresponding quarter last year. That is huge, but the shareholders expect that, huge increases. iPad sales on the other hand fell light of expectations. Some folks are saying that the iPad miss is more than just a little disappointing. And the mini, what does it mean for those sales when the pricing is quite aggressive. Mac sales, Paul got one the other day, also set a record meaning that the migration across to the laptop from more traditional places has happened too. Once people get used to the quality, they want Apple in all of their hardware.


Costs are an issue for the company, profit margins are lower than in previous years with heightened competition from the likes of Microsoft and Amazon. Perhaps, having seen Samsung results this morning, that is the one who is competing on price and product, Amazon you saw above are not exactly munching Apple to pieces. I saw a note the other day that suggested that Apple had quickened their product pipeline release to every six months from every year. So, perhaps the allure of the stock and product combined will not exist as it had before. Has the company really lost their mojo? Well, I suspect not for the time being, their products are still amazing. I own an iPad, an iPhone and recently Apple TV was an addition, I am getting close to completely figuring that one out. So far it has not received all of my time and effort.


On the conference call CEO Tim Cook and CFO Peter Oppenheimer spoke of 700,000 applications on the Apple iStore, of which one quarter of a million were for the iPad, or compliable with the iPad. Also, what we knew but what was confirmed was that demand currently outstripped supply for the newest Apple iPhone, the iPhone 5. That said, the iPhone 5 is going to be rolled out across 100 countries faster than any other iPhone release ever. Tim Cook said in the release: "We're entering this holiday season with the best iPhone, iPad, Mac and iPod products ever, and we remain very confident in our new product pipeline."

That is ultimately the "thing" that will drive Apple higher in the coming years, new product pipeline. People have gone to sleep on the whole idea of Apple iTV (not to be confused with the set top box), which was a big new wow product that was seemingly coming. Adoption by enterprise is important, most Fortune 500 companies are testing or using iPads across their business. And this was supposed to be a tool that would only "work" in the home. I didn't read the report and come away feeling disappointed. The fact that the company has had two quarters of missing expectations, that is an issue for the anxious. I suspect that in the coming years that Apple will continue to attract a wider fan base. The phone still is in part a fashion accessory. No really, people want to own the phone.


I suspect that this earnings report has highlighted that the company is not immune to supply chain disruptions (people at Foxconn want to earn more) and competition from their peers, who have closed the gap. Apple set the benchmark, everyone else wants to beat that. This is good news for innovation. I maintain that whilst the short term outlook has been clouded and questions have been asked about continuing Steve Jobs legacy at Apple, the stock is still a buy at current levels. We always said that this was a company and investment that you would have to watch closer than most. As the WSJ points out, their closest competitor is also feeling the heat after a record quarter: Samsung's Success Is Its Biggest Weakness. Most people I speak to want the new Galaxy or the new iPhone. I guess until that changes, times will be tough for Nokia, RIM and their competitors, Google has great aspirations here, they are the third competitor. Microsoft are the dark horse here too. Competition is good for innovation.