Apple released its results for the most recent quarter after market close on Wednesday. It beat financial analysts’ estimates and its own guidance, and posted solid shipments of iPads and iPhones, its two key product lines. Jan Dawson, chief telecoms analyst at Ovum has the following comments:
“In some ways, beating guidance was the worst thing Apple could have done, after it had said last quarter that it would provide more realistic guidance and aim to hit rather than beat it. A large part of the problem with Apple’s share price is that it has trained analysts to expect two things: ever-increasing revenues and profits, and that it will beat its own guidance consistently. This quarter illustrated that expecting revenues and margins to continue to grow is unrealistic, but also undermined its promise to provide more realistic guidance. While beating guidance is a positive thing in its own right, it is likely to lead to continued overheated estimates from analysts, which is not in Apple’s longer-term interest.
“Average selling prices for iPhones and iPads both fell, which suggests that much of the growth has come from lower-priced models like the iPhones 4 and 4S, and the iPad Mini. That’s a sign of things to come, as Apple has to pursue secondary markets for both of these products as primary markets become saturated, and that in turn will have an impact on margins. One of the other issues for Apple is seasonality in its results, which spike hugely in the fourth quarter of the year and then drop off for the rest of the year. The problem is that Apple is always supply-constrained in the first one or two quarters following the launch of a new iPhone, and ironically right when supply matches demand, demand starts to drop because Samsung’s new device launches and iPhone buyers have been trained to expect a new device later in the year. Apple really needs to do something to break this seasonality and solve these issues, ideally staggering multiple device launches through the year to even out the supply issues and counter the momentum Samsung gains in the middle part of the year.
“More broadly, Apple saw good strength in the Mac line. At a time when other PC makers are really struggling with falling sales, Apple maintained consistent sales year on year, and increased average selling prices significantly due to the launch of the Retina Display MacBook models. This is a sign of the ‘halo effect’ Apple is able to achieve across its product lines through the increased adoption of iPhones and iPads among traditional Windows PC makers, and the difference between the performance of high-end computers when contrasted with lower-priced machines priced at levels similar to the iPad, which is causing significant cannibalization in PCs.
“Lastly, the plan to return more cash to shareholders is clearly a response to the poor performance of the share price, which Tim Cook said on the call was enormously frustrating to the leadership of Apple. Unfortunately, it is unlikely to solve the underlying problem with the share price, which is more due to skepticism among analysts that Apple can continue to deliver strong growth without new products to complement sales of iPhones and iPads. As iPad and iPhone shipments, and especially revenues, grow more slowly, it needs new products to continue to deliver the sort of overall revenue growth it has historically produced, and it is not yet clear what those new products will be.”
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