Apple Q2: Few lemons, still plenty of lemonade

Move over, doom and gloom. Apple beat analyst expectations for its second-quarter earnings, despite not announcing or releasing anything during the three-month period. But the third quarter, with announcements on deck, is what will show real stagnation — if any.
Written by Zack Whittaker, Contributor

Apple didn't release or announce a thing for three months, but it still beat expectations in its second-quarter earnings.

Apple CEO Tim Cook
Image: CNET

Apple's second quarter was not expected to shine. Why? Nothing happened. In spite of this, Apple put its entire range of products on hold while it was readying its next generation of software and hardware products.

That risky bet paid off. The company's second quarter ending March 31 didn't disappoint — and that's accounting for the fact that the second quarter had one week less than its other quarters. And yet, Apple still beat Wall Street estimates. (ZDNet's Rachel King has more on today's numbers).

Though Apple has very few lemons in its hands, it's still churning out batch after batch of lemonade.

While February and March could have been the time when Apple announced at least two major products for the desktop and mobile like it did last year, the company didn't announce a thing. No new iPad, no new iPhone, no new mobile or desktop software, and still nothing on the long-awaited Apple iTV or iWatch.

Its various business divisions, separated handily by product, only saw losses in its iPod and Mac business, which is no surprise, considering the state of the PC market and the continued cannibalization of the Mac as a result of the iPad's popularity.

The only place where Apple fell down was its gross margin figure, estimated to be between 37.5 percent and 38.5 percent. The company reported a 37.5 percent margin compared to 47.4 percent on the same quarter a year ago. While this is likely due to the lower margin for the iPad mini, slowing sales in its Mac division are hardly helping this crucial number.

For Apple, its profit isn't a problem. Its revenue isn't something to be concerned about. Its sales may slow over time, depending on the fiscal quarter and the timeline of its releases. But above all, the company's profit margin needs to keep in check.

While sales figures for the second quarter were far from record breaking — which was expected, seeing as sales are generally slower following the post-December holiday quarter — the company did well in iPhone and iPad sales, the firm's two largest business divisions.

Here's what it looks like:

Images: Adrian Kingsley Hughes/ZDNet

The company can effectively take a back seat on producing anything public for three months, and only suffer at the hands of subjective and often very varied analysts' expectations. The maker of shiny rectangles has put its various business divisions out to pasture for the last quarter while it focuses on getting the next product ready — and right.

With the technology giant keeping mum on its next-generation range of products, it's no wonder analysts were expecting the company to see its first profit dip in 10 years.

But in that 10 years, it's worth pointing out a few things. Enter ZDNet's Larry Dignan, from this morning:

Apple is doing the rational thing: Milking its existing products as it plots out its product road map. Keep in mind that the iPod launched in 2001, iTunes in 2003, iPhone in 2007, and the iPad in 2010. In other words, Apple is due for a new product line, but not way overdue.

It's expected that June, when Apple typically holds its Worldwide Developers Conference (WWDC), is when we will see a steady stream of products — first off, iOS 7, and then OS X 10.9 to follow. With a new iPhone and iPad on deck for later this year, we can expect something significantly new to roll off the company's production lines in 2014, based on this timeline.

While Apple's second quarter was effectively stagnant and holding the fort, the third quarter is the one that is really going to show if there's any real indication of trouble.

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