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

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.
Written by Zack Whittaker, Contributor
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.

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