Exactly where did Apple miss?

Launching the iPhone 4S in October cut into quarterly sales but also allowed the company to raise guidance for the current quarter.

By Jim J. Jubak Oct 19, 2011 1:31PM
Serves Apple (AAPL) right for selling 4 million iPhone 4S handsets last weekend.

After the market closed Tuesday, Apple announced that anticipation for the new phone cut into sales for the fiscal quarter ended in September and held the company to a 54% gain in earnings.

That kept earnings per share to just $7.05, well below the $7.38 Wall Street had expected (but up from the $4.64 a share reported in the fiscal fourth quarter of 2010). Revenue climbed 39% to $28.3 billion. Wall Street projections had called for revenue of $29.7 billion.

The iPhone problem started with Apple’s developer conference in June, when the company introduced a new mobile operating system and set off rampant speculation that a new phone was in the works.

Well, that was the trouble. The longer the company put off actually selling a new iPhone, the longer it would cannibalize current iPhone sales and the less time the company would have for sales of a new phone to make up some of the difference.

One analyst calls Apple's earnings miss a "black swan event" in the following video.

Post continues below.
From an earnings-timing perspective, putting the iPhone 4S on sale at the beginning of October was a good way to maximize the damage to sales in the fiscal fourth quarter.

Apple wound up selling 17.07 million iPhones in the quarter, versus Wall Street expectations for sales of 20 million iPhones.

Other parts of Apple’s business did extraordinarily well. Sales of Mac computers, for example, were up 26% year to year. Not bad when the personal-computer industry is forecast to grow by 4%.

And those iPhone sales lost to the fiscal fourth quarter aren’t exactly lost forever. Apple raised its guidance for the first quarter of fiscal 2012 -- otherwise known as the last three months of 2011.

The company projects earnings of $9.30 a share for its fiscal first quarter, significantly above the Wall Street consensus of $8.97. Revenue will come to $37 billion, above the Wall Street consensus of $36.64 billion. Gross margins in the quarter will climb to 40.3% against the Wall Street consensus projection of 39.7%, the company projected.

We all know Apple can’t possibly show this kind of growth in revenue and earnings forever. But that eventual return to earth is built into today’s stock price.

Apple sells for just 15.3 times trailing 12-month earnings per share. Not pricey at all, considering that the 54% earnings growth rate in the just-completed quarter or that the computer sector as a whole, where growth rates are more like 5% than 50%, trades at a multiple of 14.1 times earnings.

On projected 2012 earnings, Apple trades at a multiple of just 12.7. That’s ridiculously cheap -- unless you think there’s no market for an iPhone 5 (with 4G capability) or an iPad 3.

I’d use Tuesday’s disappointment as a buying opportunity, especially if it leads to something more than Wednesday's 3.4% drop. In fact, if the disappointment drives the price down further, I’d probably add Apple to my Jubak’s Picks portfolio.

Jim Jubak
At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. 
The fund did own shares of Apple as of the end of June. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 

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Tags: AAPL
Oct 19, 2011 3:04PM
Currently Apple is up 35% for the year while the Dow is barely breaking even.  If that's a miss, I'd like to see what a hit is!
Oct 19, 2011 2:58PM
The company projects earnings of $9.30 a share for its fiscal first quarter, significantly above the Wall Street consensus of $8.97.

Embarrassed Apple missed earnings estimates by 33 cents and now they're adding those 33 cents to the next quarter estimate and you're saying that's significant. Not so, it implies that Apple's meeting analysts estimates for both quarters which is good.

Oct 19, 2011 4:11PM
Apple needs to split or declare a dividend...
Oct 19, 2011 11:54PM
I have nothing against this company, actually it has made great things, however its this applemania in the press that turn ridiculous and exharbating that it comes to the point that you really start feeling nausea and this turn itself into hatred. Why not keeping our cool and be more down to earth, I am sure that apple moment would not last forever and if I am a good on my predictions I think it has reached a pick, to keep this shares at that level this company would have to keep delivering quarter by quarter through new products, The iphone is no longer new, neither the ipads or OS, there is a lot of competitors and most likely the economy would see ressecion again, I can bet that we could see shares at 250 before 500.
Oct 19, 2011 3:41PM
A measly 54% gain in profits. Yeah, that is really poor performance in a recession created by the clowns on wall street. Maybe these "experts" should try to understand they were wrong and their business model is the problem. I don't buy Apple products because I won't pay more and get less but you have to admire the marketing expertise Apple has.
Oct 19, 2011 10:04PM


Steve is definitely turning over in his grave.  The Occupy Wall Street campaign was coordinated on IPhones.


Let's not call Jubak "Jewback."  We should never sink to the level of Germans.


Pinnacle West closed at $45.31 today.  The European and Asian money is pouring into United States utility companies big time.  Hard cheese if you own Treasuries, but if you own ConEd - you're going to Vegas!


Okay . . . predictions on the World Series?  Any bets?



Oct 19, 2011 3:42PM


Steve must be turning over in his grave.

Oct 19, 2011 6:47PM

i am not surprised in the least to discover that this is yet another one of Jim Jewback's heavy-handed articles that couldn't be more inaccurate. how did a retard like you ever land a finance-related reporting job, Jim Jewback? you need to retire BIG TIME

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