Strong iPhone sales buoy Apple

POORNIMA GUPTA
Last updated 12:00 30/07/2013

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Sales of Apple's iPhone beat expectations in the third quarter but margins slid sharply as the tech giant sold more of itd cheaper older models along with the new iPhone 5 model.

Apple shares rose on the news, but investors' biggest long-term concern is whether the company has lost its innovative edge after re-imagining at least three major consumer electronics markets, with iTunes and the iPod, the iPhone and then the iPad.

The world's largest technology company said on Tuesday that profit fell 22 per cent as gross margins slipped below 37 per cent from more than 42 per cent in the year-ago quarter.

The iPhone's solid showing eased concerns that growing competition is hurting demand for Apple's top-selling product as the global smartphone market matures.

Rival Samsung Electronics, which overtook Apple to become the world's largest smartphone maker in 2012, fuelled those fears when it issued a disappointing earnings forecast earlier this month.

"The iPhone number should provide some comfort to investors who were worried about smartphone demand. That's one of the reasons the stock is up. Expectations were not strong for this quarter," said Shannon Cross of Cross Research.

The company sold 31.2 million iPhones last quarter - far more than the estimated 26 million - and 14.6 million iPads.

Chief financial officer Peter Oppenheimer said in an interview that iPhone sales rose 51 per cent in the United States from a year earlier, and 66 per cent in Japan.

But revenue from greater China - an increasingly crucial market for the Silicon Valley giant as it strives for growth - dived 43 per cent from the second quarter and 14 per cent from the year-ago period.

Executives blamed China's slowing economy for the revenue decline but did not elaborate.

"China is a huge opportunity for Apple," chief executive Tim Cook said on a conference call. "I don't get discouraged over a 90-day kind of cycle."

Apple earned US$6.9 billion ($8.6 billion) on revenue of US$35.3b. That compared with a profit of US$8.8b on revenue of about US$35b in the year-ago quarter.

Wall Street's average forecast was for revenue of US$35.02b, according to Thomson Reuters I/B/E/S.

The company has US$146.6b in cash and short term securities.

 

Apple's stock, which has fallen 20 per cent since January, rose 5 per cent to US$437.94 in after-hours trade. 

 

HINTS ON NEW DEVICES

Since launching the iPad mini last fall, the company has yet to update its major devices.

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Cook told analysts to expect new products in coming months, with some "in new categories", but as usual he played his cards close to his chest.

"We are on track to have a very busy fall," CFO Oppenheimer said earlier during the call without going into details.

Apple forecast revenue of US$34b to US$37b this quarter, slightly below Wall Street's average projection of US$37.04b.

It estimated a margin of 36 to 37 per cent. Gross margins came in at 36.9 per cent in the third quarter, sharply below 42.8 per cent a year ago, as Apple sold more cheaper older model iPhones along with the new iPhone 5 model.

"It's pretty remarkable that they are selling as many phones as they are, given that it's not a new product," said Michael Yoshikami, chief executive of Destination Wealth, which owns Apple shares.

"That's really the key for them; they've got to come up with a new product."

- Reuters

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