Wall Street concerned by lower-than-expected iPhone sales in Apple's holiday quarter

Posted:
in AAPL Investors edited April 2014
Though Apple sold a record number of iPhones to finish 2013, exceeding 50 million in three months for the first time ever, total sales came in below investors' expectations. As a result, Wall Street analysts have expressed concern about future growth potential for the company's flagship product.

Cube


Apple reported earnings for its first quarter of fiscal 2014 on Monday, revealing it earned $13.1 billion in profit, driven by sales of 51 million iPhones and 26 million iPads. While iPad sales were slightly higher than expected, the performance of the iPhone came in lower than the 56.5 million iPhones Wall Street expected Apple would sell.

Analysts issued notes to investors following Apple's earnings report, in which many of them expressed concern about iPhone sales in the coming quarters. AppleInsider offers a roundup of what analysts are saying in the wake of Apple's best-ever fiscal performance.

Wells Fargo

Analyst Maynard Um noted that Apple's revenue of $57.59 billion and earnings per share of $14.50 were ahead of Wall Street expectations, due in part to higher-than-expected gross margins of 37.9 percent. But that surprise couldn't offset disappointment over the iPhone sales, which Um said leave questions about end demand.

The analyst said the fact that carriers are becoming more strict to 24-month upgrade cycles could serve as a sign that the "balance of power" between wireless providers and smartphone makers is shifting back to carriers.

Um expects that Apple's 2014 will be highlighted by new products, including a next-generation iPhone and a potential wrist-worn device. But Wells Fargo has maintained its "market perform" rating, citing concerns over carriers regaining strength, potential gross margin pressures from an anticipated iPhone redesign, and limited incremental market cap opportunity in existing market segments where Apple competes.

iPhone 5 with iOS 7


Cantor Fitzgerald

"AAPL is down but not out," analyst Brian White proclaimed on Tuesday. He believes Apple must introduce a new product category and initiate a larger stock buyback to appease investors.

White agrees with activist investor Carl Icahn, who has been pushing Apple to spend more of its cash on itself, buying back shares and returning the money to investors. White expects that Icahn's voice will "become even louder in the coming weeks."

As for the company's products, White said it's "more clear than ever" that Apple needs to introduce an entirely new product to return to the kinds of growth trends the company previously saw. He also noted better-than-expected earnings per share performance, and strong gross margins.

Piper Jaffray

While underlying iPhone growth is a "core question" for Apple according to analyst Gene Munster, the company's 2014 product cycle is something to get excited about. While he doesn't expect any major new releases until this fall, Munster does see reasons for investors to buy in the near-term.

"(Apple's March 2014) guidance strengthens the idea of AAPL as a stock to own through product cycles, given that the maturity and size of its core markets will make it difficult for new products to meaningfully reaccelerate revenue growth," he said.

Munster advised investors to buy more shares of AAPL on any pullback that may come from the company's disappointing December 2013 results. In pre-market trading through Tuesday morning, shares of Apple had tumbled more than $40.



Cowen and Company

Wall Street's "obsession" with unit sales continues, analyst Timothy Arcuri said. He characterized weaker iPhone sales as a "curve ball," but sees the unexpected result as a "unique buying opportunity" for investors.

"If the ~10% aftermarket move holds up (Tuesday), we would be buyers of every share possible at such levels, as such a correction in a stock of this size/quality does not come along often," Arcuri wrote.

Evercore Partners

The new plastic iPhone 5c is "looking like a dud," analyst Rob Cihra said. He believes the high-end mix of Apple's products, in particular toward the iPhone 5s, is "both a blessing and a curse."

The curse side of it, in Cihra's view, is the fact that Apple now has an installed base of about 280 million iPhone users, with replacement purchases representing about 74 percent of that mix. That's because the high-end smartphone market appears to be topping out, he said, with mid-range smartphones posting the most growth.

Needham & Company

Analyst Charlie Wolf was surprised that the issue for Apple's December quarter iPhone sales was not international markets. The company saw its sales grow 76 percent in Latin America, 65 percent in the EMEA region, 40 percent in Japan, and 20 percent in China.

"Rather, the shortfall stemmed from lower than expected sales in the U.S.," he said. "Apple attributed part of the domestic shortfall to a change in carrier upgrade policies, which stretched the iPhone upgrade cycle among owners of the iPhone."

Moving forward, the larger question for Apple, according to Needham, is whether the company can grow iPhone sales while maintaining its place as an "aspirational brand."

Mac Pro


RBC Capital Markets

Beyond the lack of iPhone growth, investors are also concerned about "lack of product innovation," analyst Amit Daryanani said. He expects the stock to stay in the $500 to $550 range in the near term, though he sees potential upside catalysts coming in the form of capital allocation, growth from China Mobile, new product cycles, and potential new revenue streams from new product categories.

Looking forward to the next quarter, Daryanani expects revenue to be flat on a year over year basis. He noted that gross margins beat expectations in December, and are expected to remain stable moving forward in the short-term.

J.P. Morgan

Shares of Apple will be under pressure in the near term as investors react to an "air pocket" in the company's route, analyst Mark Moskowitz said. He recommends that investors take advantage of any near-term weakness.

"We think investor sentiment will be bruised by the slowing iPhone momentum and indications the company misread market conditions with its rollout of the iPhone 5c among other factors," he said. "We think both are explainable and can be overcome, though."

Moskowitz also cited higher-than-expected iPad sales as one product category that could counter investor frustrations with iPhone business trends.

"Double-digit growth in China and strong demand in emerging markets could indicate the tablet adoption wave may not be over, yet," he said.

Cantor Fitzgerald

Apple's outlook for the current March quarter is conservative, analyst Brian White believes. Prior to Monday's announcement of projected sales between $42 billion and $44 billion for the quarter, Wall Street consensus was at around $46.1 billion

White said Apple's "soft" outlook for the second quarter of fiscal 2014 could give Icahn "more ammunition in pushing through his increased stock repurchase program."

iMac


BMO Capital Markets

iPhone average selling prices increased almost 12 percent quarter over quarter in December, analyst Keith Bachman noted. He believes that strong sales of the iPhone 5s and its high price points helped push gross margins higher than expected.

Bachman's concerns for Apple go beyond the current March quarter and into June. He's modeling June quarter revenue to decline by more than 16 percent quarter over quarter, which would exceed the average decline of 15 percent seen in the company's previous two June quarters.

JMP Securities

Analyst Alex Gauna remains "fundamentally neutral" on Apple stock, citing what he sees as a balanced risk and reward scenario. Specifically, he said innovation potential at Apple is offset by what he sees as a "lack of confidence inspiring execution recently."

He also said that any potential unit volume upside potential from emerging markets is offset by price sensitivity and competitive dynamics. And while Apple has a considerable amount of cash, he sees that offset by a "slowing pace of buybacks."
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Comments

  • Reply 1 of 168
    jungmarkjungmark Posts: 6,647member
    WS: it's Apple's fault that its actual data does not correspond to my wild guessing.
  • Reply 2 of 168

    LOL how come I barely hear any concern over Samsung's recent disappointing sales figures?

  • Reply 3 of 168
    rogifanrogifan Posts: 10,669member

    I'll be happy when Wall Street starts being concerned over something else. Thankfully it's the State of the Union tonight so they'll have something else to talk about tomorrow.

  • Reply 4 of 168
    Apple beat top and bottom line analyst estimates.  If like all the other tech companies Apple refused to report sales figures no one would have known what the sales makeup was.  Then the only news would be that Apple beat estimates.  Why does Apple get punished for providing the most information??
  • Reply 5 of 168
    Why people still give these people any credit?
    Because they are rich?

    And the BBC is off, very off on this.
    I wonder if it is a vendetta or just pure stupidity.
  • Reply 6 of 168
    rob53rob53 Posts: 1,986member

    Analysts: Let's roll the dice 5 times and use that for the number of iPhones we're guessing Apple will sell. That should satisfy all our investors. Of course if Apple's results don't agree with our attempt at Yahtzee, we'll blame them with some bogus, made-up reason. That's why we get the big bucks!! Let's hide those meaningless things like higher gross margins. That doesn't really mean anything. All that matters is whether we're right and Apple's wrong, which they always are. They just can't get it right and we keep trying to help them. Why won't they just listen to us????? 

     

    One of these days real investors will finally question the stupidity of these analysts and quit using them. That day couldn't quickly enough for me. To those analysts who continue to try and tell Apple how to run their company--go away, you haven't the foggiest idea how to develop products and support them. If you did, you'd have a real job.

  • Reply 7 of 168
    g-newsg-news Posts: 1,107member

    Stock is down 42.46$ as of this moment. It seems Apple has finally attracted the attention of "investors" that nobody really wants. It's a sick world we live in, where you can post a profit of over 13 billion and be punished for it by an 8% stock drop.

     

    This is ridiculous.

     

    P.S.: That also means by buying today, you'll make 8% profit within a week's time.

  • Reply 8 of 168

    Easy. They all know that Apple will continue, at least in the short term, to be a stock to own. The line about "if this holds, we will buy every share possible" should be enough. This "beating" they will take today (off about 8% as I write) is a form of (currently legal) manipulation.
  • Reply 9 of 168
    Quote:

    Originally Posted by BuddyRevell View Post

     

    LOL how come I barely hear any concern over Samsung's recent disappointing sales figures?


    Because you only read Apple sites and stay in the echo chamber.  And who cares about Samsung's figures when the article is about Apple?  Why must you keep referring to Samsung when something negative (and even positive) is mentioned about Apple.  It's silly to compare the two.

  • Reply 10 of 168
    thedbathedba Posts: 472member
    Quote:

    Originally Posted by G-News View Post

     

    Stock is down 42.46$ as of this moment. It seems Apple has finally attracted the attention of "investors" that nobody really wants. It's a sick world we live in, where you can post a profit of over 13 billion and be punished for it by an 8% stock drop.

     

    This is ridiculous.




    Actually this is an opportunity for Apple to buy back more of its shares at a lower price. The less shares there are for the likes of Icahn to manipulate, the better off they'll be.

  • Reply 11 of 168
    Carl Ichan is right about one thing, Apple should be buying back more stock. At these prices it it will improve the EPS over time and lower dividend payments.

    It is time to take those shares out of weak hands!
  • Reply 12 of 168

    AAPL buying opportunity.  Everyone just need to adjust to the fact that AAPL is no longer a growth stock... until Apple enters a new category.  

  • Reply 13 of 168
    Nothing will satisfy the ANALysts about Apple.

    Record sales? Bah humbug! they say. After all Apple doesn't have high marketshare.

    Record profits? Bah humbug! they say. After all what is Apple going to do next year?

    New product? Buah humbug! they say. It obviously will fail.

    There is nothing Apple can do that is right.

    ANALysts would rather take it up the rear and invest in never profiting Amazon than invest in hugely profitable Apple. After all, Apple is obviously in its deathbed, right?
  • Reply 14 of 168
    Considering the durable goods report that just came out today maybe Apple over-performed against what looks to be considerable multi-industry weakness all around it.
  • Reply 15 of 168
    froodfrood Posts: 771member
    Quote:

    Originally Posted by G-News View Post

     

    Stock is down 42.46$ as of this moment. It seems Apple has finally attracted the attention of "investors" that nobody really wants. It's a sick world we live in, where you can post a profit of over 13 billion and be punished for it by an 8% stock drop.

     

    This is ridiculous.

     

    P.S.: That also means by buying today, you'll make 8% profit within a week's time.


     

    Stock price is a valuation.  Apple has an incredibly high valuation (market cap).

     

    Would you agree that all else equal, a company that makes 15 billion a year is worth more than 13 billion a year?  Of course it is.

     

    If Apples valuation was based on them making 13.5 billion dollars, and they 'only' make 13.1, their stock *should* go down.  Not because $13.1 billion is a 'bad' or 'doomed' number- it just isn't as much as they were valued at.  Similary if they were valued at an expectation of making 13.5 billion dollars and they had reported 14 billion, Apple would have proven they can beat expectations.  That's just how it works.

     

    The arguments cited are very real concerns for Apple investors (other than those who blindly invest because they 'love' Apple).  Apple posted record revenues on record sales, yet posted less profit than they had in Q1 of 2012.  If they are making less profits with more sales, in order to make more money in the future they need to either post even higher sales again, or increase their margins.  In a market with slowing growth (even stagnation approaching in the high end devices) neither of those seem likely.  It is a question Apple needs to find an answer to in order to maintain their current valuation (much less a higher one).  Hopefully Apple will find that answer.

  • Reply 16 of 168
    storneostorneo Posts: 101member

    in Q1 and that's a disappointment? Wall street greed.

  • Reply 17 of 168
    aaronjaaronj Posts: 1,595member
    Quote:

    Originally Posted by starbird73 View Post





    Easy. They all know that Apple will continue, at least in the short term, to be a stock to own. The line about "if this holds, we will buy every share possible" should be enough. This "beating" they will take today (off about 8% as I write) is a form of (currently legal) manipulation.

     

    +1

     

    Couldn't agree more.

  • Reply 18 of 168
    g-newsg-news Posts: 1,107member

    If a valuation is only supposed to be based on the net profits a company gets each year, then yes, your logic would hold.

    In the old days, buying stock was called buying shares. Meaning you bought part of the company as a commitment, because you believed in what they did and wanted to help them finance new investments. That time is sadly long gone. People just care about their own profits now and the company as well as their work is irrelevant as long as the stock prices go up after you've bought your share.

     

    It's a fundamental flaw in the system and one of the main reasons why the financial and economical markets in the world are fluctuating massively, and more so with each passing decade, it seems.

     

    Maybe it's time dividends were forbidden, so that we'd go back to investing instead of speculation.

  • Reply 19 of 168
    rogifanrogifan Posts: 10,669member
    frood wrote: »
    Stock price is a valuation.  Apple has an incredibly high valuation (market cap).

    Would you agree that all else equal, a company that makes 15 billion a year is worth more than 13 billion a year?  Of course it is.

    If Apples valuation was based on them making 13.5 billion dollars, and they 'only' make 13.1, their stock *should* go down.  Not because $13.1 billion is a 'bad' or 'doomed' number- it just isn't as much as they were valued at.  Similary if they were valued at an expectation of making 13.5 billion dollars and they had reported 14 billion, Apple would have proven they can beat expectations.  That's just how it works.

    The arguments cited are very real concerns for Apple investors (other than those who blindly invest because they 'love' Apple).  Apple posted record revenues on record sales, yet posted less profit than they had in Q1 of 2012.  If they are making less profits with more sales, in order to make more money in the future they need to either post even higher sales again, or increase their margins.  In a market with slowing growth (even stagnation approaching in the high end devices) neither of those seem likely.  It is a question Apple needs to find an answer to in order to maintain their current valuation (much less a higher one).  Hopefully Apple will find that answer.
    Q1 2012? Did you mean 2013? And I thought Apple's profit was flat YOY not down.
  • Reply 20 of 168

    "Down but not out!" Give me a break.

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