Apple Sales Gain Slowest Since ’09 as Competition Climbs

Apple Inc. (AAPL) posted no profit growth and the slowest increase in sales in 14 quarters amid rising costs and accelerating competition with Samsung Electronics Co. (005930)
Profit was little changed at $13.1 billion, or $13.81 a share, in the period that ended Dec. 29, Apple said today in a statement. Sales rose 18 percent to $54.5 billion. Analysts had predicted profit of $13.53 a share on revenue of $54.9 billion, the average of estimates compiled by Bloomberg. Shares fell as much as 6.6 percent in late trading.
The results reinforce concern that Apple’s growth is being hurt by higher production costs, dragging down shares by 27 percent since September. The results step up pressure on Chief Executive Officer Tim Cook to demonstrate that Apple has more blockbuster products in the pipeline to reignite sales.
“It’s not going to be enough to turn the stock around,” Keith Goddard, CEO of Capital Advisors Inc., said in an interview. “If Apple can convince investors it can maintain margins while moving downmarket, the stock is doing to great in 2013. If not, you’ll have to be patient and wait for the investor base to turn over as growth investors move out of the stock, and long-term value investors move in.”
The lack of profit growth reflects higher manufacturing costs due to a product lineup overhaul ahead of the holiday shopping season. The company introduced the iPhone 5, iPad mini and a restyled Mac to draw customers in time for the first quarter, typically Apple’s most lucrative.

Sales Forecast

Sales of the iPhone, Apple’s biggest source of revenue and profit, reached 47.8 million units, matching the prediction by analysts surveyed by Bloomberg. The company also sold 22.9 million iPads, above the projected 22.4 million units.
Cupertino, California-based Apple, the world’s most valuable company, fell in extended trading to as low as $480.03. The shares advanced 1.8 percent to $514.01 at the close in New York.
For the fiscal second quarter, which is now under way, Apple forecast sales of $41 billion to $43 billion. That compares with predictions by analysts for revenue of $45.5 billion. The company didn’t provide a profit forecast.
“The guidance is not going to be exciting enough to get people to think the worm has turned,” Goddard said.
With the cost of redesigning its products, Apple’s gross margins, the percentage of sales remaining after deducting costs of production, was 38.6 percent in the first quarter, above the 36 percent the company had predicted in October.

iPhone 5

While Apple revamped its Mac personal-computer lineup during the quarter, selling 4.1 million Macs, that wasn’t enough to beat analysts’ predictions for the sale of 5.1 million units. Apple sold 12.7 million iPods, more than the projection for 11.4 million units.
Today’s results compare with the 2011 holiday quarter, which was a week longer than the 13-week period just reported.
“It’s going to call into question whether we have seen the peak of Apple,” said Shaw Wu, an analyst with Sterne Agee & Leach Inc. “One quarter can’t answer that question, but the concern will be heard louder until proven otherwise, and that will weigh on the stock.”
Initial iPhone 5 sales were lower than some investors anticipated due to supply shortages, and consumers criticized new mapping software. That contributed to the stock slide since an intraday high on Sept. 21, said Brian White, an analyst at Topeka Capital Markets Inc. The company overhauled its management structure to fire longtime mobile-software head Scott Forstall, and reports that Apple has been cutting orders of components also led some to believe demand is falling, White said.
“It has been an avalanche of bad news and at some point it just has to stop,” White said.

Author: Adam Satariano

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