Apple faces expansion challenges despite strong sales

PUBLISHED : Thursday, 25 July, 2013, 12:00am
UPDATED : Thursday, 25 July, 2013, 4:26am

The news on Tuesday was not particularly good for Apple: revenue was flat, profit was lower and even iPad sales were down.

Investors did not seem to mind, at least in the short term, sending the company’s shares about 4 per cent higher in after-hours trading. Strong iPhone sales helped beat the expectations of Wall Street.

But Apple’s earnings report on Tuesday highlighted some of the challenges the company faces as it continues to expand overseas. The firm sells plenty of devices in the United States, but sales have lagged in some larger overseas markets, which are crucial for its future growth.

China has been especially problematic for the company. Overall sales of Apple devices in the country fell 4 per cent from the same quarter last year. And in Hong Kong, sales were down about 20 per cent – a trend that Tim Cook, the company’s chief executive, found puzzling.

“Hong Kong is an international shopping haven,” Cook said on the company’s earnings call. “We saw some dramatic downturn there. It’s not totally clear exactly why that occurred.”

Gaining a foothold in foreign markets is becoming increasingly vital for Apple. Its growth has slowed in the most recent quarters, as its devices have largely saturated the US and some top markets in Europe.

The tepid growth has led investors to clamour for a new blockbuster product to restart growth and give Apple’s stock a much-needed lift. But no such product has been announced.

“Competition is heating up,” said Laurence Balter, chief market strategist at Oracle Investment Research. “They need to come up with some game-changers pretty soon.”

The third quarter is typically a slow time for Apple. That is because the company traditionally introduces a new iPhone model in the autumn, so in the summer many consumers are waiting for the next model to be released.

But sales of iPhones were strong. The company sold 31.2 million iPhones, up from 26 million a year ago.

Gross margin was 36.9 per cent, down from 42.8 per cent. In April, Apple warned its gross margin would fall further in the third quarter to 36 to 37 per cent.

Strong sales of Apple’s cheaper iPads and older iPhones are putting the squeeze on the margins. Late last year, the company added the cheaper iPad Mini to its line-up.

Even with the Mini, iPad sales were a disappointment, coming in at 14.6 million for the quarter, missing analyst estimates for 16.7 million. Mac sales also fell.



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