Apple's quarterly results show a company under increasing pressure. The firm needs something big and splashy, and soon, but it's not all doom and gloom.
Fiscal Q3 was not great in Cupertino, to be blunt. Earnings are down, profit is down, operating income is down, net income is down, margin is down, growth is down, and sales figures of everything except iPhones are down too.
In isolation, that would look like a disaster. In context, the report was actually encouraging, and Apple's shares (AAPL) ticked upwards in response - the numbers beat expectations, even though the expectations were fairly low to start with. The company paid a healthy dividend too, keeping investors smiling.
Most of the numbers were bad for a reason - iPad sales were down for the first time, but Apple CEO Tim Cook explained that a substantial part of that was due to inventory refreshes in the channel, and the company is in the slowest part of its annual cycle (between product releases) as well. Mac sales are down, but PC sales are a disaster for everyone, and Apple is actually suffering less than average.
iPhone sales, meanwhile, now account for the majority of Apple's revenue, and were up 20% in unit sales, despite tough times in some markets (notably China), which means they are doing particularly well in high-margin Western markets. iPhone average revenues are down, but that's because buyers are leaning towards older 4 and 4S models, which means less margin but also means they are not opting for cheaper Android devices.
Apple's margins do continue to be a cause for concern. The company reported a margin decline for the fifth consecutive quarter, though the slowing rate of descent offers a silver lining. At 36.8%, it's still healthy, and no one could expect the company to maintain its sky-high margins from the heady days of outright iPhone/iPad dominance.
Two-horse race
For the time being, Apple still enjoys high sales and strong margins. It is also doing well against Samsung in courtrooms, and despite some setbacks, Apple still holds a strong hand. In short, Apple is doing just fine in what is rapidly becoming a two-horse race between Apple and Samsung - not between iOS and Android. Samsung has saturated the market with devices and is doing well against Apple, but if it falters, then Apple could surge to dominance again in short order. The rest of the Android community, along with Microsoft and BlackBerry, are not putting up much of a fight.
The next generation of wearable technology, potentially spearheaded by very different approaches in Google Glasses and an Apple iWatch, could also play well for Apple - Google's eyepiece could be technically superior, but a watch could have the advantage in terms of comfort, familiarity, and ergonomics. It has been several years since Apple brought anything game-changing to market - not since Steve Jobs was still at the helm: the last biggie was the iPad, three years ago - and Cook is under pressure to demonstrate the company can still take those big, market-redefining leaps.
Apple still has a huge positive cash balance, and plenty of momentum. You can't expect a company to show record results in every quarter, and Apple is far from danger yet. There is a dissident undercurrent to analysts' reports, however, since they have been saying exactly that for several consecutive quarters now, and are starting to get impatient for Apple, and Cook, to deliver.
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