Despite reporting today its highest quarterly revenue – from $54.5 billion a year earlier to $57.6 billion – and operating profit ever, for the last December quarter, Apple stock fell more than 8%. Shares were down $44.50, or 8%, at $506.
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So what gives?
“No technology company has ever generated that much revenue in a single quarter,” said Apple CFO Peter Oppenheimer during the earnings call. “And we’re especially pleased to have generated that record despite foreign exchange headwinds, the year over year decline in iPod sales, and the higher revenue deferral rates from iOS devices and Macs that we discussed last quarter.”
Product-wise, this was also a really busy quarter, with Apple rolling out new iPhones, iPads, iMacs, MacBook Pros and Mac Pro.
But, although the company sold a record number of 51 million iPhones during its latest quarter, it fell short of financial analysts’ expectations of 55 million.
While it’s prudent to take the somewhat “speculative” opinion of Wall Street with a grain of salt, this “miss” would have been a drop in the ocean if Apple’s smartphone didn’t account for so much of the company’s bottom and top line – 56% of its revenue and over 70% of its profits.
Which also could help explain why Apple turned in the same net profit of $13.1 billion as a year ago, despite the revenue increase – selling more iPads and Macs, rather than higher-margin iPhones.
With a zero-growth quarter looming, Apple needs to show it can still innovate
But what really hurt Apple’s stock was the company’s lower guidance for the current quarter, predicting revenues between $42 and $44 billion, with a gross margin between 37 and 38 percent. This is roughly flat compared to the $43.6 billion in revenue and the 37.5 percent margin the company reported in the year-ago quarter.
“Most investors will be disappointed with the forecast, given the recent China Mobile launch,” said Alex Gauna, an analyst at JMP Securities. “The problem is that it’s not a robust second-quarter forecast, so we are back to no year-over-year growth, based on this guidance.”
With this in mind, Apple CEO Tim Cook is under even more pressure to show investors that the company can still innovate.
“Innovation is deeply embedded in everybody here, and there’s still so much of the world that is full of very complex products, etc. We have zero issue coming up with things we want to do that we think we can disrupt in a major way,” said Cook.
During the call, Piper Jaffray analyst Gene Munster asked Cook if Apple still planned to release a new product category in 2014, as the company repeatedly said it would last year. And Cook’s response was, “Yes, absolutely. No change.”
Although, there are a lot of things Cook could talked about, like a larger iPhone or a mobile payment system, the one device that is on top of everyone’s mind is the so-called iWatch – which could be Apple’s first entry into the wearable device category.
And according to a recent study by Deloitte, there will be 10 million wearable electronic devices sold in 2014, generating about $3 billion, and more than 100 million units by 2020. But to be fair, IDC also reported this month that the global smartphone market topped 1 billion shipments for the first time in 2013, with Apple owning 15% of it!