John Paczkowski

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Apple Earnings: A Bummer, Not a Beat

Apple earnings: Basic beat or blowout? That was the question we posed here early this morning. Now we have an answer: neither.

The quarter was a miss.

Posting third-quarter financials after market close Tuesday, Apple reported a strong jump in earnings, but still missed analyst estimates (it did beat its own). The company posted net income of $8.8 billion on revenue of $35 billion. Earnings per share were $9.32. Both numbers missed Wall Street estimates. Analysts surveyed by Thomson Reuters had been expecting Apple to post earnings per share of $10.36 on revenue of $37.2 billion.

Apple’s guidance for the fourth quarter also disappointed: The company forecast $7.65 a share for earnings on revenue of $34 billion. That’s low even for Apple, whose guidance is often comically conservative. Analysts had been looking for $10.22 a share in earnings on revenue of $38 billion.

Apple said it sold 26 million iPhones for the quarter, up 28 percent from the year prior, but down 26 percent from the previous quarter; 17 million iPads, up 84 percent from the year prior; 4 million Macs, up 2 percent; and 6.8 million iPods, down 10 percent. Wall Street was expecting iPhone sales of 29 million units, iPad sales of 16 million units, Mac sales of 4.1 million units and iPod sales of 5.9 million units.

One bit of good news: Apple’s Board of Directors has declared a cash dividend of $2.65 per share of the Company’s common stock. The dividend is payable on August 16, 2012, to stockholders of record as of the close of business on August 13, 2012.

“We’re thrilled with record sales of 17 million iPads in the June quarter,” Apple CEO Tim Cook said, pointing to the lone high point in the company’s earnings release. “We’ve also just updated the entire MacBook line, will release Mountain Lion tomorrow and will be launching iOS 6 this Fall. We are also really looking forward to the amazing new products we’ve got in the pipeline.”

Apple shares are getting hammered in after-hours trading. At $570.05, they’re down more than 5 percent.

Notes from the earnings call

  • Best quarter ever for Mac sales in education. North Carolina bought 6,000 MacBook Airs.
  • Two iPads sold for every Mac sold into education market.
  • Yes, OS X Mountain Lion is shipping tomorrow.
  • Mac sales were up 2 percent, compared to the 1 percent contraction in global PC sales charted by IDC.
  • With four to six weeks of inventory, iPad supply is no longer constrained.
  • Number of iPads in use at the Fortune 500 has tripled over the past year.
  • Cumulative iOS device sales have passed 410 million units; 45 million sold in the June quarter alone.
  • More than 150 million people are using iCloud services.
  • Tim Cook: We remain very excited by our opportunity in China and look forward to adding more local services there.
  • CFO Peter Oppenheimer: Weekly iPhone sales impacted by “continuing speculation” about possible forthcoming new products.
  • Cook: We’re not seeing anything in China that we would classify as an obvious economic issue. … We are seeing a slowdown in business in Europe, but not China or the United States.
  • No, we’re not going to talk about our fall product transition. Nice try, though!
  • Cook: Timing of portable announcement impacted Mac sales for the quarter. New MacBook Air, MacBook Pros were announced with less than three weeks remaining in the quarter. “We ended the quarter in backlog. … We anticipate catching up by next month.”
  • Cook on carrier subsidies: “… Our role is to make the very best smartphone in the world, that has an incredible user experience. And at the end of the day, that’s what our customers want and that’s what the carriers’ customers want. … From carriers’ perspective, their total subsidy is small relative to subscriber fees they collect.”
  • Cook: Most popular iPad is the new iPad, but the iPad 2 remains very popular, particularly in education.
  • 1.3 million Apple TVs sold this quarter, up 170 percent over year prior; 4 million sold so far this fiscal year. “That 4 million is not a small number. But it’s still at a level that we would call it a hobby,” Cook says. “We’re not one to continue projects we’re not believers in.”
  • No, we’re not going to talk about Passbook, NFC and Apple’s rumored plans for a digital wallet. Cook: “Passbook is an important feature of iOS 6 and I wouldn’t want to speculate on where it might take us.”
  • Cook: “We’ve all seen many different tablets, hundreds of them, come to market over the past year, but I’ve yet to see any of them gain what I would call any sort of traction. … From what we see, most customers are not looking for a tablet, they’re looking for an iPad. … We’ve now shipped over 84 million iPads. It took us more than twice as long to achieve that with the iPod. … We feel really, really good about our momentum in this space.”
  • Cook on Apple in India: “I love India … but I believe that Apple has some higher potential in the intermediate term in some other countries. That doesn’t mean we’re not putting emphasis in India, we are. … But the means of distribution there adds to the cost of getting products to market. We will continue to put some of our energies there, but the immediate larger opportunity is elsewhere.”
  • Cook: “Our North Star is to maniacally focus on making the world’s best products. … We are going to stay focused on making the best products because we’ve seen again and again that when we distance ourselves further from people who don’t innovate, we further distinguish ourselves.”
  • Cook on Oppenheimer’s earlier remark that rumors of the next generation iPhone have undermined sales of the iPhone 4S: “I’m not going to spend any energy stopping people from speculating about our next products. I’m glad that people want the next thing. I’m super happy about it.”

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