Apple Inc.’s experiment with rolling out two new iPhones at the same time backfired as weak demand for the cheaper version with a plastic case led the company to sell fewer smartphones than expected during the holiday quarter.
Although Apple on Monday reported record revenue for its first quarter, which ended in December, the 51 million iPhones it sold fell short of the 55 million units that Wall Street analysts had expected. Those soft sales coupled with a surprisingly weaker outlook for the current quarter sent the company’s stock tumbling more than 8% in after-hours trading.
For the first time in its history, Apple introduced two new iPhones in September: the pricier iPhone 5s that sported new features such as fingerprint ID and a more powerful camera; and the iPhone 5c that cost about $100 less and came in array of colorful plastic cases.
Apple Chief Executive Tim Cook said during a conference call with analysts that sales were hurt in part by changes in carriers’ upgrade policies that caused some customers to delay getting new phones. But he also acknowledged that more customers than expected wanted the more expensive iPhone 5s and fewer than expected wanted the 5c, which was the focus of the company’s initial marketing push.
Although retailers offered sizable discounts to move iPhone 5c units sitting on their shelves, Apple had to ramp up production of the 5s throughout the quarter in a race to meet demand.
“I think last quarter we did a tremendous job, particularly given the mix was something very different than we thought,” Cook said. “It was the first time we had ever run that particular play before, and the demand percentage turned out to be different than we thought.”
Just as troubling to many analysts was the company’s outlook for the current quarter, which ends in March. Apple said revenue in the quarter would be $42 billion to $44 billion, short of the analyst consensus of $46.1 billion.
The lower guidance was particularly surprising because this month Apple started selling the iPhone through China Mobile, the world’s largest carrier. Many analysts had assumed the new partnership would at the very least offset any other weaknesses, if not boost overall sales.
“That’s surprising to be that weak,” said Brian White, an analyst at Cantor Fitzgerald. “I said China Mobile will have a great year with Apple, but it won’t be right out of the gate. But I was surprised it didn’t at least buffer some of the softness.”
Peter Oppenheimer, Apple’s chief financial officer, said on the Apple conference call with analysts that the lower guidance was in large part the result of some technical changes in such things as inventory management and the deferral of more revenue because it was offering more free software. He also said iPod sales declined 52% in the December quarter and would continue to fall this coming quarter, creating “head winds.”
“The underlying performance of our business is stronger than what the guidance might imply,” Oppenheimer said.
The guidance and iPhone numbers overshadowed the kind of quarter that most companies would envy. Overall, the slew of updated gadgets — including new iPad tablets, MacBook laptops and Mac Pro desktop computers — drove Apple to record revenue over the holiday quarter.
“While earnings may be flat, most companies would kill for their fundamentals,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy. “Their products are high quality, their customers love them, and they are sitting on an obscene amount of cash.”
In the most recent quarter, Apple’s cash on hand grew to $158.8 billion from $146.76 billion the previous quarter.
Apple said quarterly revenue climbed to $57.6 billion from $54.5 billion a year earlier. That slightly beat analyst estimates of $57.46 billion, according to Thomson Reuters.
Profit was the same as a year earlier at $13.1 billion. But because of its increasingly aggressive stock buyback program, the company’s earnings rose to $14.50 a share from $13.81 a year earlier. Wall Street analysts had expected Apple to post earnings of $14.09 a share, according to Thomson Reuters.
Among the bright spots were sales of iPads and Mac computers.
Apple sold 4.8 million Macs, compared with 4.1 million in the December 2012 quarter. The company sold a record 26 million iPads in the first quarter, up from 22.6 million a year earlier.
That topped analysts’ consensus estimates of 24.6 million iPads in the December quarter. That also reversed three straight quarters of declines, with the help of the new iPad Air and the new iPad mini with Retina display that debuted midway through the quarter.
Apple shares rose $4.43, or 0.8%, to $550.50 in regular trading, before Apple reported its earnings. They plunged in after-hours trading, at one point falling below $507.
Los Angeles Times