Apple has a new iPhone, two new iPads and three new PCs as it heads into the holiday quarter, the biggest selling season of the year. However, paradoxically, it expects these new gadgets to bring down its profits compared with last year.
The reason: The new gadgets are expensive to make, Apple executives said on Thursday, and the company is not interested in cutting corners for the sake of short-term returns.
On top of the holiday-quarter warning, the company reported earnings for its just-ended quarter that missed Wall Street’s expectations for the second quarter in a row — something that hasn’t happened in more than a decade.
In part, the issues facing Apple are a normal consequence of having so many new products, chief financial officer Peter Oppenheimer said. When a production line is new, it costs more to run and the components are more expensive.
“The difference this time is the sheer number of products we’re introducing at a short time,” Oppenheimer told analysts on a call.
Apple expects a gross profit margin of 36 percent in this quarter, the lowest in at least four years. In the holiday quarter last year, its gross margin was 44.7 percent.
CEO Tim Cook justified the projected profit drop 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 said it expects earnings of US$11.75 per share in the holiday quarter, below the US$13.87 per 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 US$15.59, on average.
Apple expects sales of US$52 billion, roughly in line with analyst expectations of US$56 billion, considering the company’s conservative forecasts.
Apple shares fell US$6.33, or 1 percent, to US$603.47, extending a downward trend for the stock, which hit an all-time high of US$705.07 a month ago, on the day the iPhone 5 went on sale.
A slowdown in the growth of iPad sales was a major contributor to earnings miss for the latest quarter. 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 last year, but in the latest quarter, the Asia-Pacific segment grew just 15 percent, year on year. Growth in the July-September quarter was also slow in Europe.