Apple's Q3 disappoints; iPhone shipments light

Apple's third quarter was a disappointment relative to expectations as the company issued a dividend.

The company said third quarter earnings were $8.8 billion, or $9.32 a share, on revenue on revenue of $35 billion.

Wall Street was expecting earnings of $10.37 a share on revenue of $37.2 billion.

Apple did declare a quarterly dividend of $2.65 a share, but that did little to satisfy investors. The big concern is that Apple is indicating an overall smartphone slowdown. Equally unclear is whether Apple is being hit by macroeconomic issues or a big wait ahead of the iPhone 5 launch. 

Related: Apple's Q3 earnings: The numbers to know

The big issue for Apple is that consumers may be holding off on purchases even for the iPhone. To wit:

• Apple said that the company sold 26 million iPhones in the third quarter. Piper Jaffray analyst Gene Munster said in a research note that he's more confident that Apple can ship 28 million to 29 million iPhone units in the quarter.
• The company sold 17 million iPads during the quarter, up 84 percent from the year-ago quarter. Wedbush analyst Scott Sutherland estimated that Apple will ship 12.68 million iPads in the fiscal third quarter.
• Apple sold 4 million Macs in the quarter and 6.8 million iPods.

Apple CFO Peter Oppenheimer made the following points about the global economy on the earnings conference call:

Sales of each of our products did exceed what we had had factored into the guidance. That was especially true of the iPad which set a new record at 17 million units. And the $35 billion of revenue that we reported grew by $6.5 billion year-over-year. We do think some things did impact us in the quarter, so let me comment on that. The economy in Europe is not doing well. We think this impacted our results. We also saw some economic impact in the natural resource based economies including Australia, Brazil and Canada. As Tim discussed, regarding the iPhone, we're reading the same rumors and speculation that you are about a new iPhone and we think this has caused some pause in customers purchasing. The timing of availability of Intel's ivy bridge and resulting rumors about the new portables impacted our sales in April and May. Tim talked about how after WDC we saw a large increase in sales, both in terms of weekly sales, before WDC, and on a year-over-year basis and customers are loving the new MacBook Pro. And we did not get the benefit of launching the new iPad in China or the new portables as we're pursuing routine regulatory approval. And finally, the dollar strengthened against most currencies around the world which reduced our revenue growth sequentially by over $200 million net of our hedges.

Oppenheimer added:

• Mac OS X Mountain Lion launches on Wednesday.
• Apple launched the iTunes store in 12 countries including Singapore, Hong Kong and Taiwan.
• On iPhone sales, Oppenheimer said:

We sold 26 million iPhones compared to 20.3 million in the previous June quarter. That represents 28% year-over-year growth and was ahead of the amount we factored into our guidance following very strong sales in channel inventory build we achieved in the March quarter. We added several small regional carriers during the quarter and now have iPhone distribution to over 250 carriers in over 100 countries. We ended the quarter with about 8.3 million iPhones in channel inventory, a sequential decline of about 300,000 iPhones and we remain within our target range of 4 to 6 weeks of iPhone channel inventory.

• Apple said it had its best quarter for education sales and expanded deployments in PepsiCo and other large enterprises.
• China remains a strong market for Apple despite economic worries.

As for the outlook, Apple took its usual conservative tone. Apple projected fourth quarter earnings of $7.34 a share on revenue of $34 billion. Wall Street was looking for fourth quarter earnings of $10.23 a share on revenue of $38.02 billion. The wild card for the fourth quarter is the timing of an iPhone 5 launch.

In addition, it's worth noting that Apple topped its outlook for the third quarter. Wall Street historically pooh-poohed Apple's outlook as being overly conservative and upped its estimates. This time may be different.

What's going on with Apple?

The company saw slower sequential growth in key markets. Year-over-year sales were strong. Mac units, however, took their lumps globally.