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Apple

Apple designs and sells consumer electronics, computer software, and personal computers and also operates retail stores. Its best-known hardware products are Macintosh computers, the iPod, the iPad and the iPhone – Apple is the world’s third largest mobile phone-maker after Samsung and Nokia. 

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Apple profit forecast falls short of market target

Tech giant increases spending on upgrading products and churning out iPhones and iPads

PUBLISHED : Saturday, 27 October, 2012, 12:00am
UPDATED : Saturday, 27 October, 2012, 2:52am

Apple forecast profit that fell short of analysts' predictions as chief executive Tim Cook boosts spending to revamp the company's product line and get new iPhones and iPads in stores by year-end holidays.

Profit in the current period would be about US$11.75 a share on sales of about US$52 billion, Apple said in a statement. That compares with the average estimate of analysts of US$15.49 a share on sales of US$55.1 billion.

Last quarter's profit rose to US$8.67 a share, against US$8.75 projected by analysts.

Rising production costs reflect Apple's race to unveil new versions of phones, tablets and other computing devices that can vie with competing products from Microsoft Corp, Amazon.com and Google.

Cook said the company was in "the most prolific period" in its history, as measured by product introductions. Lower-priced iPads also helped send profit margins to a near two-year low.

"A lot of the products are new, and when products get freshly introduced, production costs are higher," said Giri Cherukuri, a portfolio manager at Oakbrook Investments.

Apple's stock fell 1.2 per cent to close at US$609.54 in New York on Thursday, and has slumped 13 per cent since reaching a record the week the iPhone 5 went on sale, related partly to the company's struggle to keep up with demand.

While revenue rose 27 per cent to US$36 billion, operating expenses rose 29 per cent to US$3.46 billion, a sign Apple spent more to refresh its entire product line ahead of the holiday sales season. Research and development costs rose 40 per cent.

Besides the iPhone 5 and a new tablet called iPad mini, Apple in recent weeks introduced upgrades to the iPad and new versions of its iPod and Mac computer lines.

"We've never introduced so many new form factors at once," chief financial officer Peter Oppenheimer said.

When a technology company introduces a new product, it typically encounters higher costs for components and equipment that can squeeze profit margins. For instance, Oppenheimer said the iPad mini had "significantly lower" profit margins than Apple's overall level.

He said costs would come down over time. Apple's gross profit margin, the proportion of sales left after deducting production costs, was 40 per cent last quarter, the lowest level since the first quarter of last year.

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