Apple Inc missed Wall Street’s revenue forecast for the third straight quarter after iPhone sales came in below expectations, fanning fears that its dominance of consumer electronics is slipping.
Shares of the world’s largest tech company fell 10 percent to US$463 in after-hours trade, wiping out about US$50 billion of its market value — nearly equivalent to that of Hewlett-Packard and Dell combined.
On Wednesday, Apple said it shipped a record 47.8 million iPhones in the December quarter, up 29 percent from a year earlier, but that figure lagged the 50 million that analysts on average had projected.
Expectations heading into the results had been subdued by news of possible production cutbacks by some component suppliers in Asia, triggering fears that demand for the iPhone, which accounts for half of Apple’s revenue, and the iPad could be slowing.
However, some investors clung to hopes for a repeat of years of historical outperformance, analysts said.
“It’s going to call into question Apple’s dominance in the space. It’s still one of the strong players, the others being Samsung and Google. It’s still a two-horse race, but Android continues to grow rapidly,” Sterne Agee analyst Shaw Wu said.
“If you step back a bit, it’s clear they shipped a lot of phones, but the problem is the high expectations that investors have. Apple’s conservative guidance highlights the concerns over production cuts coming out of Asia recently,” he said.
Apple is forecasting revenue of US$41 billion to US$43 billion in the current, second fiscal quarter, lagging the average Wall Street forecast of more than US$45 billion.
Fiscal first-quarter revenue rose 18 percent to US$54.5 billion, below analysts’ average estimate of US$54.73 billion, though earnings per share of US$13.81 beat Wall Street’s forecast of US$13.47, according to Thomson Reuters I/B/E/S.
Apple also undershot revenue targets in the previous two quarters, and these results will prompt more questions on what Apple has in its product pipeline and what it can do to attract new sales and maintain its growth trajectory, analysts said.
Net income of US$13.07 billion was virtually flat compared with US$13.06 billion a year earlier because of higher manufacturing costs. The year-ago quarter also had an extra week compared with this year.
Gross margins consequently slid to 38.6 percent, from 44.7 percent previously.
“You can’t just keep rolling out iPhones and iPads and think that everybody needs a new one,” said Jeffrey Gundlach, who runs DoubleLine Capital LP, the US$53 billion bond firm.
“There are plenty of competitors like Samsung and other legitimate competitors like them,” said Gundlach, one of the highest-profile Apple bears. He maintains a US$425 price target.
Intense competition from Samsung’s cheaper phones — powered by Google’s Android software — and signs that the premium smartphone market may be close to saturation in developed markets have also caused a lot of investor anxiety.
Meanwhile, sales of the iPad came in at 22.9 million in the fiscal first quarter, roughly in line with forecasts.
On the brighter side, Apple chief financial officer Peter Oppenheimer said that iPhone sales more than doubled in greater China — a region that Apple CEO Tim Cook has vowed to focus on as its next big growth driver.
The company will begin detailing results from that country going forward. Revenue from the region totaled US$7.3 billion, up 60 percent from the year-ago December quarter.
In an unusual move for Apple, which typically does not respond to speculation, Cook addressed the production cutback rumors at length on the conference call and questioned the accuracy of rumors about its plans.
Media reports earlier this month said the company is slashing orders for iPhone 5 and iPad screens, and other components from its Asian suppliers.
“Even if a particular data point were factual, it would be impossible to accurately interpret the data point as to what it meant for our overall business, because the supply chain is very complex,” Cook said, adding that Apple has multiple sources for components.
Apple’s initial iPhone and iPad Mini sales were hurt by supply constraints, but Cook expects supply to balance demand for the iPad Mini this quarter. He also acknowledged that the iPad was cannibalizing its high-margin Macintosh computers, but said it was a huge opportunity for the company.
“On iPad in particular, we have the mother of all opportunities here, because the Windows market is much, much larger than the Mac market is,” he said. “And I think it is clear that it’s already cannibalizing some.”