Apple Q3: iPhone gravy train derails in expectations miss

Apple Q3: iPhone gravy train derails in expectations miss

Summary: What were you expecting, a blowout quarter? Apple's fiscal third quarter was about as dry as the Utah desert, as Wall Street gears up for an expected revolutionary second-half.

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

Things have been a little quiet around Cupertino as of late. Except for a glimmer at the city's largest technology giant's latest desktop and mobile software, no new products have been pushed out the door.

And so it's likely no surprise that, during its quietest quarter with nothing on offer to kick its main cash cow — the iPhone — back into gear, things weren't going to land so well.

Apple reported on Tuesday fiscal third-quarter ending mid-June income of $7.7 billion on earnings of $1.28 per share (statement). Revenue for the quarter was $37.4 billion.

Wall Street was expecting Apple to report earnings of $1.23 per share on revenue of exactly $38 billion.

So it was a hit on earnings per share, but a miss on revenue.

What happened? Apple didn't sell as many iPhones or iPads as analysts were expecting. The company missed by about 600,000 iPhones, and down 1.16 million iPads. Its software and services unit, which includes iTunes and in-app purchases, also took a hit on expectations, but surpassed year-over-year goals.

But at least on the bright side, things are looking up on the Mac front, which beat Wall Street estimates and grew year-over-year.

By the numbers:

  • iPhones: 35.2 million sold, up from 31.2 million from the same period a year ago, but down on average analyst expectations, which were expecting 35.78 million units.
     
  • iPads: 13.3 million sold, down from 14.6 million from the same period a year ago. Analysts were expecting 14.43 million, based to average estimates. 

  • Macs: 4.4 million sold, up from 3.8 million from the same period a year ago. Analysts were expecting 3.93 million, based to average estimates. 

  • iTunes, Software & Services: $4.48 billion in revenue, up from $4.1 billion from the same period a year ago. Analysts were expecting $4.53 billion, based to average estimates. 

In prepared remarks, Apple's chief executive Tim Cook said its third-quarter revenue was fueled by "strong iPhone and Mac sales, but did not mention analyst expectations. He added:

"Our record June quarter revenue was fueled by strong sales of iPhone and Mac and the continued growth of revenue from the Apple ecosystem, driving our highest EPS growth rate in seven quarters. We are incredibly excited about the upcoming releases of iOS 8 and OS X Yosemite, as well as other new products and services that we can’t wait to introduce."

Apple declared a cash dividend of $0.47 per share of common stock, payable mid-August. 

The company also generated $10.3 billion in cash flow during the quarter, and served up more than $8 billion in cash to investors, it said.

Also, sales outside the U.S. accounted for almost 60 percent of sales during the quarter.

In all, the numbers weren't bad, but consumers are hungry for what's next. And patience is wearing thin. For Apple to keep its own promise that it would dish out new products lines and services, it has to hit something in the coming five months.

The company said for its fiscal fourth quarter outlook, it's expecting to bring in between $37 billion and $40 billion in revenue, which fall slightly short of Wall Street estimates of $40.44 billion.

Shares in Apple ($AAPL) closed up shy of 1 percent on the Nasdaq in New York at market close on Wednesday. In after-hours trading, shares were at the time of writing down by more than 1 percent.

Topics: Apple, iOS, iPhone, iPad

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15 comments
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  • Not at all bad ...

    .... and shareholders do fuss!

    Considering there was little in the way of jaw-dropping innovation, Apple did just fine.

    But I suspect the shareholders will be in full diarrhoea mode if this is repeated next time.

    Apple can promise 'jam tomorrow' more than most companies, but even they will have to make good on all those "accidental" leaks and hints of Wonders To Come.
    Heenan73
    • Not sure it's the shareholder so much as the analysts.

      But you can't please everyone.
      matthew_maurice
      • Analysts know nothing.

        The fact is, the stockholders made more money this quarter. As Apple pointed out, they had record 3Q revenues and their earnings per share went up. So what if the analysts expected them to break their revenue record by a larger margin. They still broke their previous 3Q record. The disappointment of the analysts is irrelevant as far as I'm concerned. The mismatch between their projections and the real data says more about the analysts' poor prognostic abilities than it does about Apple's success.
        BillDem
        • Analysts know nothing...how correct!

          Thank you for expressing the same feelings I have toward analysts numbers. A company break records but analysts complaint because their numbers do not match.

          In the end we made money, will make more money with the new products announced on sep 9th, and analysts will continue to be wrong. You can trade aapl, but holding it make you more money in the end.
          e_ecruz
  • What?

    I quote "So it was a miss on both earnings per share, but a miss on revenue."

    You understand what's Mr. Whitaker wrote? I don't.

    Here's what happened. Compared with Q3 2013, Apple made more profit and profit per share.

    Margins went up from 36 to 39 percent.

    Either Wall Street overestimated the number of shares (I believe Apple has been buying shares back), or it was predicting a lower margin, otherwise the eps and revenues should both have been higher than Apple's results.

    Wall Street has its own perspectives and reactions, usually related to its overestimation of its ability to predict long-term growth from quarterly fluctuations. We'll see what happens tomorrow in trading.
    DannyO_0x98
    • Yeah, I had the same thought.

      Apparently, earning only $1.28 per share when the street expects you to earn $1.23 is a miss.

      Or something.
      pdq
      • Editing error -- now corrected

        Just one of those typo issues... apologies
        zwhittaker
    • or the numbers are just wrong

      nt
      greywolf7
      • Which Numbers?

        Wall Street expectations? I am on record saying that Mr. Whitaker has troubles with his writing, but I believe he did get those numbers correct. All numbers and statements that Apple provided today were faithfully repeated in the report.

        There are serious consequences if Apple's numbers are misstated, some legal, but mostly civil.

        And a sincere oops and sorry for not catching the incorrect "what's" in my original post.
        DannyO_0x98
  • Apple disappoints analysts again.

    YOY tablet sales down, Mac sales up. This whole Post PC era is confusing.
    TRIMTI
    • That's been trending for a while

      The dropping interest in tablets and growing interest in laptops and desktops has been trending a while now.
      Buster Friendly
    • There is no confusion:

      people needs macs and ipads
      or
      people need PCs and tablets

      Shake, pour; repeat next quarter.
      theo_durcan
  • Better to break it down by all revenue

    We really don't care all that much about units and mixing units and revenue makes it confusing. It's best to look at revenue alone. That shows better just home much they depend on constantly selling new iphones to make their numbers.
    Buster Friendly
  • That's a miss??

    In what world is being 1.5% under expectations a miss? Sounds to me like that kind of variation from expectation to reality should be well within the margin of error for people like analysts who have a lousy track record when it comes to predicting any company's performance. So stupid.
    sirhomealot
  • That's dry as a Utah desert?

    Oh come on. Fiscally speaking, that was a good quarter. The only thing dry about the whole situation, fiscally speaking, is any demonstrateable insight on the part of nalysts with regards to Apple's business.

    I also like how IDC and Gartner, yet again, were way off on their projection of Mac sales and Mac market share. Yet, will we see more headlines promoting what they say in their next "research" release as if it was some kind of valuable and insightful truth from trusted sources? Of course. Why would demonstrating core incompetencies in the areas people offer themselves as experts in go to the heart of their credibility? That just wouldn't make any sense.
    Veridium