Why Apple disappointed Wall Street

Analysts had high expectations, but a slowdown in iPhone sales hurt the quarter in a big way.

By Kim Peterson Jul 24, 2012 5:00PM
This is where you see the downside of all the iPhone hype.

Everyone knows a new iPhone is coming soon, and as a result, people are delaying iPhone purchases until the next version is out. So now Apple (AAPL) finds itself in a new boom-and-bust cycle for its most important product -- and the quarter reported Tuesday definitely fell into the bust side.

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Revenue rose about 22% to $35 billion -- still jaw-dropping growth for a company as large as Apple. But lower-than-expected iPhone sales meant the company couldn't meet analyst expectations of $37.2 billion. Profit came in at $8.8 billion, or $9.32 a share, up from $7.31 billion, or $7.79 a share, a year earlier. Analysts had wanted to see about $10.36 a share.

In other words, Apple delivered a shocking miss. Analysts were preparing for a weak quarter, but this was worse than many expected. Apple has beaten Wall Street estimates every quarter except one since 2003, Bloomberg reports.

Apple shares tumbled 5% in after-hours trading to $570.49.

The company sent a clear message with its guidance for the current quarter: It's not getting any better out there. Apple expects profit for its fiscal fourth quarter of $7.65 a share on revenue of about $34 billion. The company always lowballs its guidance, but this seems extremely conservative even by Apple standards. Wall Street was expecting $10.22 a share in profit on $38 billion in revenue.

The iPhone is getting all the attention, and for good reason. More than half of Apple's revenue comes from the iPhone. The company sold only 26 million in the quarter, down from 35 million in the preceding quarter. Wall Street was expecting sales ranging from 28 million to 32 million.

Apple executives acknowledged that all the rumors about a new iPhone were hurting sales. They didn't give any hints about a future iPhone, nor did they mention any release date for the highly anticipated device.

"There's a lot of speculation out there," CEO Tim Cook said in a conference call with analysts. "There's an incredible anticipation out there for future products, as you would expect, given what we've been able to deliver in the past."

There was some good news in the report. The company sold 17 million iPads -- more than the 14 million to 15 million many analysts expected.

Even Apple can't escape the global economic slowdown. European revenue fell 6% sequentially, while revenue in the Asia-Pacific fell 22%. Year over year, however, revenue was up 16% in Europe and 25% in Asia.

"The economy in Europe is not doing well. We think this impacted our results," said chief financial officer Peter Oppenheimer.

But Cook said there were no problems that he attributed to the economy in China. Part of the decline in sequential revenue was a normal seasonal drop after the successful launch of the iPhone 4S in China in January, he said. Other changes in channel inventory also contributed to the decline.

There's very little Apple can do to fight all the rumors that are cutting into iPhone sales, so executives aren't even going to try.

"I'm glad that people want the next thing. I'm super happy about it," Cook said. "I'm not going to put any energy into trying to get people to stop speculating. I don't think that's going to amount to anything."

Tags: AAPL
Jul 24, 2012 6:07PM
It is a wonder to me that Apple does as well as it does considering their high prices and the availability of other companies products that do the same thing for half the price.  A fool and his money are soon parted.
Jul 24, 2012 6:14PM

Expectations.........where ridiculous......22% on a company this size.   Forecasters outside the company are useless.    Whos says the analysis are rigth in their "projections"


Jul 24, 2012 7:43PM
If you look at the last quarter, the sales decrease and iPhone sales decrease was forecast for this quarter: check the graphs at: http://www.fool.com/investing/general/2012/04/23/will-apple-hit-or-miss-earnings-tomorrow.aspx.  So why did the "experts" ignore that and make ridiculous forecasts?  And why is this article acting like the cut in iPhone sales is "shocking"?

In the 90's I'd have considered myself paranoid but with the hundreds of millions of fines major analysts have paid in the 2000's for intentionally misleading investors in order to benefit wealthy clients, there's clearly a corporate culture that says "being ethical is out of date."

I'm going to buy a new car next year and I've already sold stocks in commodities and risky stocks because I can't count on the companies' fundamentals being considered in some analysts rating, so I'm going to bank the cash now before the powers that be artificially drive the market down.

Jul 24, 2012 11:45PM

Opps, poor Apple? And the real competition doesn't start until October 26, 2012 when Windows 8 and Windows Phoen 8 ships. Oh, the iPhone 5 is made of Apple monkey glass.

Jul 25, 2012 1:06AM
Apple had an exponential rise. In natural exponential rises do not last very long. There will be period when it goes down. If the company does well, it can go up again. But it is too early to say. Apple will probably suffer through the coming deflationary crash. What we have is a bubble of financial assets. When the bubble bursts, valuations can become lower. Google for FINANCIAL MANIA CONTINUES to understand why we have a bubble in valuations. Don't wave your PE ratio to me. Earnings will disappear in a deflationary crash.
Jul 24, 2012 9:18PM

In my Opinion if you want to be told what to buy & only have 1 Choice Apple is your Company, if you want MANY Choices Samsung is the LEADER Followed by LG, Nokia, Motorola & More. So if your cattle & need to be Hearded Apple is your Rancher. Have fun with your 1 Choice Apple Fans.. Im sure someone will follow this with APPLE is the BEST, because they are among the MASS who has been Brainwashed into believing so. REMEMBER anyone BASHING Samsung is really Bashing their iPhone or iPad since SAMSUNG makes MOST of the CRUCIAL Components in those Devices. So if SAMSUNG sucked so Bad Why is APPLE Contracting them for PARTS for their Devices????

Oh & By the way ALL ANDROID PHONE MAKERS have had 4G phones for over a year now Apple has yet to release a 4G LTE phone.... PERIOD. Oh those Ding bats who think their iPhone 4S is 4G phone do the Research it uses a 3G Processor MADE by SAMSUNG & Samsung SUED Apple in Erupoe for using SAMSUNGS 3G Processing Capability ILLEAGALLY... Swallow that Chunk of Apple, Apple Fan Boys

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