Apple revenues up 1% at $35.3B, profit down 22% but sees better-than-expected iPhone sales

Sales of Apple Inc's iPhone trumped Wall Street estimates after US shipments soared 51 per cent in the third quarter, lifting its stock 5 per cent even as profit fell.

The world's largest technology company said Tuesday that profit fell 22 per cent as gross margins slid below 37 per cent from more than 42 per cent in the year-ago quarter.

The iPhone's solid showing eased concerns that growing competition is hurting demand for Apple's top-selling product as the global smartphone market matures. Rival Samsung Electronics Co Ltd, which overtook Apple to become the world's largest smartphone maker in 2012, fueled those fears when it issued a disappointing earnings forecast earlier this month.

Apple's stock, which has fallen 20 per cent since January, rose 5 per cent to $437.94 in after-hours trade. It closed at $418.99 on Nasdaq.

"The iPhone number should provide some comfort to investors who were worried about smartphone demand. That's one of the reasons the stock is up. Expectations were not strong for this quarter," said Shannon Cross of Cross Research.

The company sold 31.2 million iPhones last quarter - far more than the estimated 26 million - and 14.6 million iPads.

Chief Financial Officer Peter Oppenheimer said in an interview that iPhone sales rose 51 per cent in the United States from a year earlier, and 66 per cent in Japan.

But revenue from greater China - an increasingly crucial market for the Silicon Valley giant as it strives for growth - dived 43 per cent from the second quarter and 14 per cent from the year-ago period.

Executives blamed China's slowing economy for the revenue decline but did not elaborate.

"China is a huge opportunity for Apple," Chief Executive Tim Cook said on a conference call. "I don't get discouraged over a 90-day kind of cycle."

Apple earned $6.9 billion, or $7.47 a share, on revenue of $35.3 billion. That compared with a profit of $8.8 billion, or $9.32 a share, on revenue of about $35 billion in the year-ago quarter.

Wall Street's average forecast was for revenue of $35.02 billion and earnings per share of $7.32, according to Thomson Reuters I/B/E/S.

The company has $146.6 billion in cash and short term securities.

Hints on New Devices

Investors' biggest long-term concern about Apple is whether the company has lost its innovative edge after re-imagining at least three major consumer electronics markets, with iTunes and the iPod, the iPhone and then the iPad.

Since launching the iPad mini last fall, the company has yet to update its major devices.

Cook told analysts to expect new products in coming months, with some "in new categories," but as usual he played his cards close to the vest.

"We are on track to have a very busy fall," CFO Oppenheimer said earlier during the call without going into details.

Apple forecast revenue of $34 billion to $37 billion this quarter, slightly below Wall Street's average projection of $37.04 billion.

It estimated a margin of 36 to 37 per cent. Gross margins came in at 36.9 per cent in the third quarter, sharply below 42.8 per cent a year ago, as Apple sold more cheaper older model iPhones along with the new iPhone 5 model.

"It's pretty remarkable that they are selling as many phones as they are, given that it's not a new product," said Michael Yoshikami, chief executive of Destination Wealth, which owns Apple shares. "That's really the key for them; they've got to come up with a new product."

Expert views on Apple result: Looking for catalyst, new product

Apple Inc on Tuesday posted stronger-than-expected quarterly profit and revenue, boosted by a jump in iPhone sales to 31.2 million -- a record for the June quarter.

Quarterly gross margin in Apple's third-quarter fell to 36.9 per cent from 42.8 per cent in the year-ago period.

Shares jumped 4 per cent on the news in trading after the bell.

Analyst/Investor Comments:

Colin Gillis, Analyst at BGC Partners

"We like it. You got to love that 31.2 million iPhone number. The market's absorbing the September quarter guidance, you've got to make it to the product refresh cycle.

"You may not like the revenue guidance. But with Apple, when they roll out a new phone, demand dries up for the existing one. So that's not a huge surprise.

"And you got to like the fact that they're able to maintain 37 per cent gross margin."

Giri Cherukuri, Oakbrook Investments

"I thought it was a decent report -- the fact they beat estimates was a good thing. And iPhone sales were higher than expected so that's good. I was disappointed in iPad sales. By region, the US was up and the rest of the world was down. It could be some indication the rest of the world's economies may not be doing so well."

Shannon Cross, Analyst, Cross Research

"The iPhone number should provide some comfort to investors who were worried about smart phone demand. That's one of the reasons the stock is up. Expectations were not strong for this quarter.

"There's a mix shift to the lower end because the ASP was down. Some of the weakness in ASP is likely because of the yen. They sell a lot of iPhones in yen, and there was depreciation of that currency in the quarter. That probably knocked several dollars off the ASP.

Macs were weak. People are waiting for the Intel Haswell chip refresh. These processors are coming out soon, and there was probably some channel clearing going on in the quarter. iPad was weaker than expected, which was a little concerning... People may be starting to anticipate a refresh. The tablet thesis may be weakening too. It may not be that PC demand is falling, it may be that the consumer is weak."

Michael Yoshikami, CEO of Destination Wealth (Apple shares)

"I think that the numbers are probably better than many people expected, given the fact that many people had such little positive perspective on apple at this point."

"Margins continue to shrink which I think is to be expected as the cell phone business becomes more mature. And as usual, Apple is pretty conservative on their guidance going forward.

"Given the fact that we have no new product essentially in this quarter, and that we a product release coming next quarter most likely, I'm actually pretty pleased with these results.

"It's pretty remarkable that they are selling as many phones as they are, given that it's not new product. That's really the key for them, is they've got to come up with a new product."

Stephen Massocca, Managing Director, Wedbush Equity Management LLC, San Francisco

"It appears to be better than expected. $35 billion in revenue in the quarter -- those are good numbers. Mac shipments were a little light as were iPod shipments; iPhone shipments though were much better than expected.

The iPhone number was very, very good.

I think it will have a good impact (on stocks)... Certainly in the wake of Google and Microsoft, it's one of the big tech companies actually reporting better-than-expected numbers."

Daniel Ernst, Analyst At Hudson Square Research

"It's nice to see a bit of a beat for a change. Earnings are still down year over year. I think it's going to take a new product introduction before we see earnings turn positive. It's a step in the right in the direction with low expectations. The iPhone (numbers) were great -- a few more million than people expected."

Adam Sarhan, Chief Executive Of Sarhan Capital, New York

"This was a blah quarter and the story hasn't changed. Investors are looking for a big catalyst to propel it back into being a strong-growth stock. Until it delivers a new innovative product that really adds to both top and bottom-line, I would expect the stock to continue treading water. They beat expectations, but investors want to see where organic growth comes from."