Apple Profit Soars But Misses High Expectations

Oct. 19, 2011
Cook: 'Customer response to iPhone 4S has been fantastic, we have strong momentum going into the holiday season and we remain really enthusiastic about our product pipeline.'

Apple's net profit in the recently ended quarter soared with booming iPad sales, but its stock sank Tuesday on the eve of a workplace tribute to Steve Jobs due to missed iPhone expectations.

The iconic California company reported record-high quarterly profit of $6.62 billion on revenue of $28.27 billion boosted by iPad sales that nearly tripled to 11.12 million in comparison with the same period last year.

The enviable earnings, however, did not measure up to expectations Wall Street had set for Apple, and the company stock price slid more than 6% to $394.05 in after-hours trading.

"We are thrilled with the very strong finish of an outstanding fiscal 2011, growing annual revenue to $108 billion and growing earnings to $26 billion," said Apple CEO Tim Cook.

"Customer response to iPhone 4S has been fantastic, we have strong momentum going into the holiday season and we remain really enthusiastic about our product pipeline."

The company saw iPhone sales rise to 17.07 million units and Macintosh computer sales climb to 4.89 million units in 26% and 21% increases, respectively, from the third fiscal quarter in 2010.

But analysts had expected iPhone sales to be stronger.

'Steve Jobs Always Beat the Street'

It was the second miss for Apple when it came to managing market expectations, said independent Silicon Valley analyst Rob Enderle.

"Steve Jobs always beat the Street because he was expert at managing expectations," Enderle said, noting that the stock was punished because Wall Street thought Apple's fourth-quarter earnings would be better.

And while the new iPhone 4S is superb, people had anticipated a dazzlingly different fifth-generation Apple smartphone, Enderle said.

Cook unveiled the 4S on Oct. 4, one day before visionary Apple co-founder Jobs died following a long battle with cancer.

His health failing, Jobs, for whom a private memorial will be held Wednesday at Apple headquarters in Cupertino, Calif., had stepped down as chief executive in August and was replaced by Cook.

Word spread Tuesday that Apple retail stores would close in homage to Jobs during the workplace tribute.

Apple executives, meanwhile, downplayed the break in iPhone sales momentum, saying rumors buzzing before the launch last week of the iPhone 4S caused people to wait to snap up the latest model.

"I am confident we will set an all-time record for iPhone this quarter," Cook said during an earnings conference call.

"In our wildest dreams we couldn't have gotten off to as good a start as we did with the 4S."
Apple has sold more than 4 million iPhone 4S smartphones since it was released Friday in seven countries: the United States, Australia, Canada, France, Germany, Japan and Britain.

It will be available in 22 other countries -- including much of Europe -- by the end of October, and more than 70 countries by the end of 2011, the company said.

Apple executives predicted iPad sales also will shatter records during the year-end holiday shopping season.

Sales of iPod MP3 players slid 27% to 6.62 million in a predictable decline in the fourth fiscal quarter as people increasingly rely on smartphones for video and music.

'Sky is the Limit' in China

Mainland China has become Apple's fastest-growing region, with revenue there second only to the United States.

"I've never seen a country with as many people rising into the middle class that aspire to buy products Apple makes," Cook said. "The sky is the limit there."

And Apple is seeing "significant opportunity" as well in Brazil, Russia and the Middle East.

A formidable iPad challenger has yet to arrive, according to Cook, who believes that the tablet market will become larger than the personal computer market.

Apple has sold more than 40 million iPads since Jobs introduced the tablet early last year.

Cook also said iPad sales are cannibalizing desktop-computer and laptop sales, but that the biggest bite is coming out of the market for machines powered by Microsoft's Windows operating systems.

"We are coming out very well in the cannibalization category," Cook said, noting that Macintosh sales in the past quarter were at a record high.

"With cannibalization like this, I hope it continues," but he declined to comment on patent battles that Apple is fighting with makers of Android-powered smartphones and tablets in an array of courts.

Apple finished the quarter with slightly more than $80 billion in cash.

Copyright Agence France-Presse, 2011

Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!