Apple profit, margins slip as China sales rise just 6 per cent

PUBLISHED : Tuesday, 29 October, 2013, 10:38am
UPDATED : Tuesday, 29 October, 2013, 10:38am

Apple’s profit and margins slid despite selling 33.8 million iPhones in its September quarter, and revenue from China climbed just 6 per cent even though two smartphone models hit store shelves in its second-largest market last month.

The unremarkable quarterly numbers prompted some disappointed investors to cash in recent gains in the stock, which slid 5 per cent at one stage in after-hours trading on Monday.

Wall Street had hoped for a stronger beat on quarterly sales after the company predicted in September that its revenue and margins would come in at the high end of its own forecasts.

Chief executive Tim Cook predicted a “really great” holiday season: a crucial time for Apple as its new iPads go up against’s Kindle Fire and its new iPhones compete with lower-cost gadgets made by Samsung Electronics and other rivals using Google’s Android software.

Sources have said demand for Apple’s US$100 cheaper, brightly hued iPhone 5C lagged sales for the top-tier 5S, spurring concerns about the iPhone’s market positioning and its ability to compete with a growing profusion of lower-cost rivals.

The iPhone 5C is available in the United States starting at US$99 with a contract, or US$549 for an unlocked model with no contract.

It does raise the question, how well is Apple doing really, in China?
Analyst Alex Gauna

In particular, some investors worry Apple may have missed a chance to jumpstart sales and fend off Samsung in China with an even more affordable phone. The company has ceded ground steadily to Samsung and homegrown competitors like Huawei and Lenovo but needs to stake out a bigger spot in the world’s top mobile-phone market to rekindle growth.

Revenue from mainland China, Hong Kong and Taiwan climbed just 6 per cent to US$5.7 billion in the quarter, despite the 5C and 5S going on sale in September.The previous-generation iPhone 5 began selling in the country only in December, meaning comparisons should have benefited from a more typical year-ago quarter, analysts said.

Sales grew by about 24 per cent from the previous quarter, or by about US$1.1 billion. But that lagged the roughly US$1.4 billion that Apple managed to tack on in last year’s December quarter.

“It does raise the question, how well is Apple doing really, in China?” said JMP Securities analyst Alex Gauna.

“Apple is a very healthy company.” But “if you look at the last few quarters, and even with the guide, it’s not much of a growth company”, Gauna said.

Cook told analysts on a conference call that results from China were “pretty good” but acknowledged room for improvement.

“We obviously want to do better,” he said.

Cook did not address the overall popularity of the 5C on his call with analysts but mentioned there was “a very significant backlog” for the more expensive 5S.

[There is] a very significant backlog [for the iPhone 5S]
Apple chief executive Tim Cook

The world’s most valuable tech company said on Monday it expected revenue of US$55 billion to US$58 billion this quarter, outpacing Wall Street’s forecast of about US$55.65 billion.

Gross profit margin for the fourth quarter to September was 37 per cent, down from 40 per cent a year ago as intense competition from the likes of Samsung took a toll. That was roughly level with analysts’ average 36.9 per cent forecast. Earnings per share slid for  a third straight quarter to US$8.26 but beat analysts’ average estimate of US$7.94.

Shares in Apple, which have gained 17 per cent since its upbeat forecast last month, slid as much as 5 per cent on Monday before recovering after Cook said the company will continue studying its capital-return programme, addressing recent demands by investors to share more of its cash hoard.

The company is increasingly hard-pressed to fend off rivals. Strategy Analytics estimated on Monday that Apple’s market share slipped to 13.4 per cent in the calendar third quarter from 15.6 per cent previously, while Samsung led with 35.2 per cent.

As growth tapers off, some shareholders have become increasingly aggressive in seeking a bigger return of cash – the company ended the September quarter with US$146.8 billion in cash plus short-term and long-term marketable securities.

Billionaire Carl Icahn, who owns 4.7 million Apple shares, has led the charge, demanding the company initiate a tender offer to buy back US$150 billion of its stock.