Apple Q1: Record iPhone sales but not enough; weak Q2 outlook

Apple Q1: Record iPhone sales but not enough; weak Q2 outlook

Summary: As if there was any doubt, Apple's first quarter earnings on the whole blasted analyst expectations. Though the quarter saw record iPhone sales, they fell short of Wall Street estimates.

TOPICS: Apple, iOS, iPhone, iPad
(Image: CNET/CBS Interactive)

After a blowout fiscal first quarter, Apple proved again it can nail the December holiday sales season. But its cash cow, the iPhone, didn't do quite as expected despite the company trumpeting "record" quarterly sales.

The Cupertino, Calif.-based technology giant reported on Tuesday fiscal first quarter net income of $13.07 billion with earnings of $14.50 per share. Revenue stood at $57.59 billion. (statement)

Wall Street was expecting the technology giant to post earnings of $14.09 per share, on revenue of $57.46 billion for the holiday quarter.

"We are really happy with our record iPhone and iPad sales, the strong performance of our Mac products and the continued growth of iTunes, Software and Services," Apple chief executive Tim Cook said in prepared remarks. "We love having the most satisfied, loyal and engaged customers, and are continuing to invest heavily in our future to make their experiences with our products and services even better."

Here are the numbers you need to know:

  • Gross margin was between 37.9 percent, down slightly compared to 38.6 percent on the same quarter a year ago, but above analyst expectations of 36.5 and 37.5 percent

  • International sales accounted for 63 percent of the first quarter's revenue, up from last year's 61 percent

  • Apple's cash pile stands at $159 billion, up from $147 billion on the year-ago quarter

  • Apple's board declared a cash dividend of $3.05 per share, payable on February 13.

In terms of sales on its four major product lines, Apple reported:

  • iPhones: 51 million, up from 47.8 million in the year-ago quarter but down from average analyst expectations of 55.3 million

  • iPads: 26 million, up from 22.9 million in the year-ago quarter, and up by average analyst expectations of 24-25 million.

  • Macs: 4.8 million, up from 4.1 million in the year-ago quarter and up by average analyst expectations of 4.6 million

  • iPods: 6.05 million, down from 12.7 million in the year-ago quarter, and down by average analuyst expectations of about 8 million

Once again, iPhones and iPads proved vital to the company's bottom line, but the iPhone gravy train is slowing down. At very least, Wall Street was expecting at least 2 million more iPhones during the quarter.

Meanwhile, Macs remain important but very much on the sidelines.

It comes a few days after Apple celebrated the Mac's 30th anniversary since the first Macintosh hit the market. But if you thought the rumors that iOS and OS X — the two operating systems for mobile and desktop respectively — would merge, beyond the current unification of features and technologies, Apple executives poured cold water on the idea, according to a Macworld interview.

Shares in Apple closed 0.8 percent up at $550 per share on the Nasdaq stock exchange, up 10 percent a year ago. In after-hours trading, the company was down more than 8 percent as of 5.15 p.m. ET. 

Looking ahead to the fiscal second quarter, Apple is expecting weaker results based on analyst expectations.

The company said it should hit revenue between $42 billion to $44 billion, down from Wall Street's estimates of about $46 billion. Gross margin of between 37 percent to 38 percent, while operating expenses should land between $4.3 billion and $4.4 billion.

Topics: Apple, iOS, iPhone, iPad

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  • If you look hard enough, you can always find Thunder Clouds amongst

    all the silver linings.

    The iPhone gravy train is slowing down? The second quarter sales will be weak? Interesting definition of the term "weak".
    • I know. Sales are up, numbers are up

      yet stocks are down 7.5% after hours?
      • Apple was considered a growth stock

        Now they look like MS. Sure, they're getting bigger still, but they're under threat and they aren't getting bigger very quickly.
        x I'm tc
        • True, perhaps, but ...

          ... Apple's biggest competitor these days is Samsung, particularly in the phone and tablet business ... and Samsung's share actually shrunk, whereas Apple's actually grew.

          As for analysts projections ... if they're so smart, why aren't they actually out running these businesses instead of "projecting" how well they'll do? Why not? Because they aren't that smart after all. They have no idea how well these businesses will or won't do. They guess at it. Educated guesses, perhaps, but guesses nonetheless, especially with Apple, which is still incredibly secretive. How they can guess at sales then be disappointed when Apple actually beats them makes no sense whatsoever. And there should be little shock (nor concern) about iPod sales rapidly declining: customers are spending more to buy iPad minis ... or larger iPads, instead, which are more useful. A great example of Apple cannibalizing itself to sustain itself.

          Record sales and profits, more cash in the bank (too much, if you asked me, but still it's hard to argue that they aren't healthy) and still analysts are disappointed and stock prices fall. Yeh, that makes perfect sense.
          • Such fanatical devotion to a company.

            Geez, man, get help.
          • no kidding

            these guys get wound up about anything less than "so wonderful it is magic". They
            need to attach their personality to something important.
          • Did you read the article? They didn't beat the expectations for iphone/ipod

            iPhone expectations were 55M, actual was 51M, missed by almost 10%.
            iPod expectations were 8M, actual was 6M, missed by 25%
            And most important next quarter looks pretty crappy. No surprise at all their stock is down.
            Johnny Vegas
          • Android whitebox tablets have destroyed iPod markets...

            ...while Android in large scale has decimated both iPhone, iPad and Windows.

            272 million Android smartphones and tablets sold during Q4 2013. 61% of all devices (mobiles + pc) and 75% of all mobiles.

            Napoleon XIV
          • Napolean, your use of "destroying" is perfect.

            Android is "destroying" the market by flooding it with cheap, hard to use devices that simply do not stack up against the competition.
            Google rode Windows coattails for years to build their revenue stream by advertising on what was a vast majority of Windows devices (Apple did this too via itunes for windows which was the only reason for it's growth in reality. Unless someone would like to argue either company would have been successful without being used on Windows devices? )
            Now Google is imitating Microsoft's one OS for all vendors but Google controls the OEMs in ways MSFT never did and MSFT was getting hate posts for years over it, but you don't see that for the way Google is controlling their OEM partners, which they very well are. If you want to see how, just find a good article on the Skyhook suit filed against Google and read those emails sent by Google employees.
            It shows that Windows users are not interested in crying FOUL, they are just not a large group of zealous nuts. But those same emails, had they come from MSFT, would have set ZDNET on FIRE for Months.
            Odd isn't it? ZDNet caters to it's zealous hater filled ranks because unfortunately they have taken over the conversation on most forums. Likely becaue they by and large have the extra time as opposed to windows shop folks who are proud to work for a living and contribute to the economy. With open source the U.S. becomes more and more nothing but a services based economy with nothing of value to hold on to, not even well engineered software.
          • Over-reaching much?

            Google rode the Internet Wave... to suggest they were "riding Microsoft's Coattails" is delusional. Google did what all great companies did: they transformed part of the industry they found, both by being the first company to successfully move all sorts of aspects of computing to the web (though many had discussed it) and by re-inventing ad sponsored content.

            If anything, you can blame Linux's coattails for Google's success, since they were able to build their innovations on a solid FOSS platform. Which is precisely the point of FOSS.
          • That's fair

            Until the iPod abandoned Firewire and adopted USB, along with a version of iTunes for Windows, the iPod wasn't as successful. Apple had finally found a product that could ride Windows coattails, because it didn't require a Windows user to switch their method of operation or Windows environment, just to listen to music. It turned out to be a great Trojan Horse.
          • Can't people make reasonable decisions?

            Or do we need to raise barriers to entry in order to protect successful companies from ignorant, ungrateful consumers?
            John L. Ries
          • Cheap, yes

            Hard to use, no.
            Android is quite easy to use, and very user friendly for those who don't know. iPhone on the other hand is overly complicated and all you see Apple zealots ever doing is "looking for help" as to "who knows how" to "do x feature" on their device. SO as its supposedly so easy to use, its not easy for a tech savvy person to figure out and the average person has no idea at all how to use it... Its simply a fashion statement and its dying.
            And while I don't like the direction that Google is going with Android these days... Microsoft isn't doing too badly either. The market is going in all directions at once. But it seems as if Apple will be a non-player in a few more generations as the "fad" of Apple devices is over when Android and Windows devices have some cooler key features and some awesome hardware that is obviously better to the average person.
          • Other stuff too

            Don't forget that devices like the Dell venue 8, (A FULL DESKTOP PC OS) on a 8 inch tablet have been selling well in business
          • Exactly

            It doesnt matter how many units Apple sells if their marketshare continues to decline, which makes their entire ecosystem less attractive to developers. And it doesn't matter how fast they make them, even if everyone could afford them the 50 other vendors selling Android based devices will beat them every quarter. Meaning that Android is slowly going to win regardless. Just as what happened with Windows and Mac originally.. Everyone started putting Windows on everything... Now only Windows is a threat to Android as it seems to be holding its own marketshare pretty well. And while Windows 8 hasn't gained traction in the enterprise the average consumer is starting to receive it a bit better now that it is in its second generation. Eventually as it gets better it should be able to stay around. Windows 7 was great and MS has a chance again with Windows 9. Windows 8 was a step in the right direction (as far as the back end) but a step in the wrong direction for the desktop (but great for a tablet).
            If they fix the desktop in Windows 9 then it would be a Win/Win. Because Windows 8 is actually faster than Linux in many ways these days (sadly Linux has become quite bloated and slow these days). And while I am writing this from Linux right now, my linux is hyper fast but its using alot of custom stuff and a custom built, carefully-selected and optimized kernel. On a stock kernel it is slower than Windows 8 on the same machine....
          • Seems small, considering

            I'm not challenging this info, but 61% of all devices (mobiles + pc) and 75% of all mobiles actually seems small, considering that is a grouping of all these android products from multiple vendors, where as the iOS devices come from only one company. Not really sure of the relevancy of this to the topic concerning Apples Q1 results, but it would be interesting to see this broken down per company. For tablets alone:

            "Among vendors, Apple had the largest global market share at 29.7%, followed by Samsung Electronics with 17.4%, Amazon 5.4%, Lenovo 4.2%, Asustek Computer 2.8%, Google 1.4%, Acer 1%, Dell 0.8% and Hewlett-Packard 0.5%."
          • Really? They break all kinds of records...

            Really, they break all kinds of records, and your focused on Wall street analyst expectations?? Perhaps the wolves on wall street, were too greedy once again? You can always find a way to spin a story into a negative comment. Who is the loser here?
          • Oh Please!

            I'm not a fan of Apple but basing their presumed failure on wall Street estimates is silly esp with how wall Street is run always lookin 4 d biggest pie. No matter where u take these earnings Apple was a success this quarter if short by 2Million phones based on WS estimates who gives a d*mn?!
          • And your expectations are?

            So what? Analysts predictions were off. Maybe they aren't so sh*t hot at making predictions. That's all that proves. Perhaps these bone heads should go to an Apple store and watch what people are buying. 30 minutes on a Saturday morning ought to be enough.

            I'm not a "fanboy", but it's a fact they are selling more products than in the past. If only every company could "fail" so well. If this is Apple falling down, I can't wait to see them standing up!

            For the record, I own a 5s, an 2013 iPond Touch, a 2013 Mac Air, and a 2010 iPod Nano. I also have a 2013 win 8 phone and a 2013 Sony Xperia. Plus 5 PC laptops.

            I figured iPod sales would be lower than they turned out to be. Most people listening to tunes on an apple device re doing it on an iPhone these days. Go to a Apple store and almost no one even picks up an iPod anything compared to Phones and tablets. I like mine however as it is way easier on the battery than running my phone. I charge it once or twice a week rather than once or twice a day for example. But regardless of that reality, there's not much reason to own an iPod for many consumers. So why the blown out of proportion predictions?

            Too many investors invest on the basis of what a bunch if douche bags in 5000 dollar suites think of the average consumer. These "analysts" and the people who invest bass in their out of touch "expert" advice are all this story is about. It is basically an example of the stupidity of analysts.

            Remembering 2007... What did they predict for 2008 in general?
          • Anonymous, this goes against prior posts but....

            As other vendors draw closer to Apple's quality on the build and software, at a much lower cost, what do you think is going to happen?
            Sure they are still doing really well, but have you looked at year over year percentages from the start comparatively? It seems the train is slowing overall domestically. I think who can grab the majority of the emerging markets will define whether Apple can continue to be a growth company. Yes, I saw the percentage of sales that were international but that is not emerging markets.
            Are they starting to plateau a little? That's all it takes for investors to back off a little. The company will still do great and have great dividends for years, but doesnt' mean analysts won't note as such.