Despite posting record revenue for the first quarter of its 2013 year, Apple failed to impress investors, as its shares lost 9.77% in after hours trade, dropping below the $500 mark for only the second time in several months.
Apple's profit curve has hit the slowing stage, indicating the current era of the technology giant being the blue-eyed boy of the technology investment market is coming to an end. In the first quarter of the year, Apple's net income was flat, although the company noted it was a record net profit quarter.
Apple CFO Peter Oppenheimer says the quarter saw it turn over the highest revenue and profit ever on the back of record iPad, iPhone and iTunes sales. Oppenheimer points out that the 2012 quarter included an additional week.
Apple's revenue gained 8.2%, to $54.5 billion, compared to the first quarter of 2011, when it turned over $46.3 billion. Net profit gained slightly to $13.078 billion, compared with $13.064 billion in the previous year.
However, its gross margin was lower, at 38.6%, compared with 44.7% in the year-ago quarter, although the company beat expectations with the margin. Its operating profit was also lower year-on-year, at $17.2 billion, compared with $17.3 billion.
Shareholders sold off after hours, and the stock lost 9.77%, to $463.78 - much lower than the $600-plus levels it was trading at in September and October.
Pushing innovation
Presenting the company's results on the eve of the 29th anniversary of the Mac, CEO Tim Cook said: "We're thrilled with record revenue of over $54 billion and sales of over 75 million iOS devices in a single quarter."
The iPhone accounted for the bulk of Apple's revenue, with 47.8 million units being sold for a total value of $30.7 billion. Some 22.8 million iPads were sold, worth a combined $10.7 billion. Macs, iPods, software, services, iTunes and accessories made up the balance of Apple's sales.
Cook said no technology firm has ever reported such levels of sales before and Apple continues to drive innovation to make sure consumers love its products. "We're very confident in our product pipeline as we continue to focus on innovation and making the best products in the world."
According to supplementary information, the group's largest geographic source of income is the Americas, which accounted for $20.3 billion of its $54.5 billion in revenue. The region is followed by Europe, at $12.5 billion, greater China at $6.8 billion, then Japan, the rest of Asia Pacific and retail.
Apple's iTunes and app store also had record-breaking quarters, and iTunes was extended to another 56 countries, including SA, taking it to 119 countries globally. The group also added 11 new stores, taking it to 401 globally, 150 of which are outside the US.
Oppenheimer adds: "We established new all-time quarterly records for iPhone and iPad sales, significantly broadened our ecosystem, and generated Apple's highest quarterly revenue ever."
Just ordinary
Arthur Goldstuck, MD of World Wide Worx, says Apple is now entering a phase of slowing net profit, despite its record-breaking sales figures. "What makes it bad for Apple is that they're starting to look like a normal company."
While still profitable, the technology group is probably seeing its era of outperforming the market coming to an end, in both investor and market share metrics, says Goldstuck. He explains that investors have become used to high margins and market dominance, which happened fast, but are now evaporating.
While former CEO Steve Jobs single-handedly reinvented the smartphone, the company became complacent and arrogant, says Goldstuck. He points out that the iPhone 5 shows little innovation over the iPhone 4, which is two years old.
In addition, Apple's market share has fallen behind Samsung, which has a bigger slice of the market, although Apple's sales by value are still higher.
Goldstuck adds that Apple has also had to play catch up when the seven-inch tablet arrived on the market "without Apple's permission". He points out that the smaller device quickly took 40% of the market.
Apple needs game-changing innovation, says Goldstuck. At the moment, its pipeline points to variations of products. However, he says the group could enter a new era and recapture its position as the darling of the market.
Vesact analyst Sasha Naryshkine says the iPhone sales came in below the initial guidance of around 57 million units due to supplier issues and more competition from open source companies, although the numbers are still a record.
Naryshkine says Apple, which has more cash than the US government, has provided forward-looking guidance that sales and margins will be lower in the next quarter. In the second quarter, Apple expects revenue of between $41 billion and $43 billion, and gross margin to be between 37.5% and 38.5%.
Investors could be seeing the company as ex-growth and pricing that into the stock, says Naryshkine. He adds that this could be an opportunity to grab the stock at what looks like cheap levels.
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