Apple misses earnings estimates despite huge year on year growth

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Apple yesterday disappointed investors with weaker than expected fourth fiscal quarter earnings, despite a 24% year on year increase, due to the impact of delayed purchases of iPhones and iPads ahead of new launches and also higher manufacturing costs.

Apple’s shares finished down 1.2% at $609.5 in normal trading, and initially moved lower in after hours trade before settling back at $609.

For the quarter ended Sept. 29, Apple reported net income of $8.2 billion, or $8.67 per share, compared with net income of $6.6 billion, or $7.05 per share, for the same period in 2011. Revenues were 27% higher at $36 billion. Expectations were for revenues of $35.8 billion with earnings of $8.75 per share.

The company sold nearly 27 million iPhone’s (up 58%) and 14 million iPad units for the quarter but with iPad sales coming in around 3 million less than expected.

The company’s expectations for the remainder of the year surprised analysts on the downside, the explanattion being supply constraints for some of its new products and with predictions that supply would not catch up with demand for some time, particularly on the iPhone 5. Apple forecast earnings per share of $11.75 with revenue of $52 billion for the December quarter versus expectations of earnings of $15.41 per share and $55 billion revenue, with three quarters of sales in the quarter coming from new product launches.

Apple has been hamstrung by relatively high production costs for some of its latest products with manufacturing costs rising sharply. Its property, plant and equipment costs doubled to $15.5 billion in the last quarter compared with a year ago. The company also pointed out that  gross profit margins on each iPad Mini, its latest launch, were significantly below its other products. As a result overall gross margins are expected to decline 400 basis points to 36 per cent in the next quarter.

So in summary, incredible growth, but with expectations so high, the company needs to keep delivering and all now depends on significant further growth in iPhone and iPad. We now have the iPad Mini, but the long anticipated iTV (a fully equipped TV with web capability) still eludes Apple addicts. Will this be the driver in 2013?

Contrarian Investor UK

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