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Apple IPhone Sales Trail Estimates for Holiday Quarter

Apple Inc. (AAPL)’s iPhone sales over the holiday season and revenue projections for the current quarter trailed analysts’ estimates, adding to evidence that its flagship product is losing steam as a growth engine in a crowded smartphone market.

Apple said in a statement today that it sold a record 51 million iPhones for its fiscal first quarter ended Dec. 28, missing analysts’ estimates of 54.7 million handsets. The company also said revenue will be $42 billion to $44 billion in the current quarter, compared with analysts’ estimates of $46.1 billion. Shares fell in extended trading.

The iPhone sales over the holidays indicate that demand may be ebbing for new models of the high-end smartphone -- which is Apple’s primary revenue source -- as competitors flood in with new offerings. While the end-of-year shopping season is usually the company’s most lucrative period, many consumers are flocking to cheaper smartphones. Last week, rival Samsung Electronics Co. reported its slowest profit growth since 2011 as it battles Apple in high-end smartphones and inexpensive handsets made by Lenovo Group Ltd. and Xiaomi Corp.

“The high-end of the market is saturated,” said Van Baker, an analyst at researcher Gartner Inc. “Apple’s going to have to rethink its approach.”

Photographer: Ron Antonelli/Bloomberg

The holiday results indicate that demand may be ebbing for new iPhone models -- Apple Inc.’s primary source of revenue -- as competitors crowd in with new smartphone and tablet offerings. Close

The holiday results indicate that demand may be ebbing for new iPhone models -- Apple... Read More

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Photographer: Ron Antonelli/Bloomberg

The holiday results indicate that demand may be ebbing for new iPhone models -- Apple Inc.’s primary source of revenue -- as competitors crowd in with new smartphone and tablet offerings.

Profit was $13.1 billion, or $14.50 a share, for the quarter, little changed from $13.1 billion, or $13.81, a year earlier, Cupertino, California-based Apple said today. Sales rose 5.7 percent to $57.6 billion. Analysts had predicted profit of $14.07 a share on sales of $57.5 billion, according to the average of estimates compiled by Bloomberg.

Under Pressure

The results up the ante on Apple Chief Executive Officer Tim Cook to enter new product categories to boost growth. Apple hasn’t introduced an entirely new product since the iPad’s debut in 2010. In its last fiscal year, the company posted its first annual profit decline in at least a decade. Apple shares rose just 5.4 percent in 2013, trailing the Standard & Poor’s 500 Index’s 30 percent gain.

Apple fell as much as 9.1 percent in extended trading after the results were released. The shares had increased less than 1 percent to $550.50 at the close in New York. While the stock is down 1.9 percent so far this year, the shares are up 26 percent in the past six months.

Global Market

Apple’s smartphone growth is trailing the global market. IPhone shipments increased 13 percent in 2013, while the broader market rose 41 percent, according to researcher Strategy Analytics. The company’s share of the market fell to 15 percent from 19 percent, while Samsung captured 32 percent, the research firm said.

Photographer: David Paul Morris/Bloomberg

Apple Inc. reported quarterly iPhone sales that trailed analysts’ estimates, even after debuting new models for the holiday shopping season. Close

Apple Inc. reported quarterly iPhone sales that trailed analysts’ estimates, even after... Read More

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Photographer: David Paul Morris/Bloomberg

Apple Inc. reported quarterly iPhone sales that trailed analysts’ estimates, even after debuting new models for the holiday shopping season.

“To expect the kind of growth we saw years ago is not feasible,” said Channing Smith, who helps oversee about $1.1 billion at Capital Advisors Inc. in Tulsa, Oklahoma. “These are more expensive products, especially what Apple is selling, and that condenses the market opportunities.”

Apple’s forecast for the current quarter also raised questions as the numbers offer a glimpse of how sales are faring after the release earlier this month of the iPhone on China Mobile Ltd. (941), the world’s largest carrier. Apple projected gross margins of 37 percent to 38 percent for the quarter, compared with analysts’ estimates of 37.3 percent.

Many Factors

Chief Financial Officer Peter Oppenheimer said the revenue projection for the current quarter was shaped by a stronger U.S. dollar compared with the Japanese yen and Australian dollar, deferred revenue, lower sales of the iPod music player and the fact that iPhone sales started in China earlier than with previous models.

In a conference call, Cook said iPhone sales with China Mobile had had “an incredible start.” The smartphone is available in 16 cities in China and will be in more than 300 by the end of this year, he said.

Sales last quarter were fueled by the iPhone 5s and 5c, as well as the iPad Air and iPad mini, which all made their entrances in time for the holiday rush. The new iPhones, which start at $549 without a wireless contract, were available in 100 countries by the end of 2013. Apple sold 26 million iPads compared with analysts’ estimates for 25 million units.

Apple’s sales in the Americas region fell 1 percent to $20.1 billion, while sales in Greater China rose 29 percent to $8.84 billion.

Strong Pipeline

Cook said sales in North America “did not do as well” over the quarter, partly because new upgrade policies by carriers led to customers waiting longer to upgrade their devices. Apple also didn’t have the right mix of iPhones for sale between the new 5s and 5c models, and the high-end 5s was more popular than expected, he said.

The CEO added that innovation at the company has “never been stronger.” Among other things, Apple is exploring expanding its mobile-payments system and Cook said a fingerprint sensor that has been built into the iPhone 5s was built with mobile payments in mind.

“We have zero issue coming up with things we want to do that we can disrupt in a major way,” Cook said. “The challenge is always to focus on the very few that deserve all of our energy.”

Apple, which has been pressured to return more money to shareholders, also declared a cash dividend of $3.05 a share and said it had returned more than $43 billion in payments to date. Billionaire activist investor Carl Icahn last week increased his stake in the company to about $3.6 billion and has been pressing Cook to increase the buyback program to boost Apple’s stock price. Icahn’s proposal is slated to be considered at the company’s annual shareholder meeting next month.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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