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Apple Reports Record Sales, But Flat Profits

Cupertino, Calif. – Apple reported $54.5 billion in quarterly revenue and a net profit of $13.1 billion in its fiscal first quarter ended December 29, 2012, but that didn’t seem like enough for Wall Street.

While revenue was a quarterly record topping the prior year’s first quarter revenue of $46.3 billion and net profit last year was the same as this year’s opening quarter – $13.1 billion Apple’s stock price sank in early trading.

Bloomberg reported this morning that Apple stock “plunged in early trading after posting the slowest profit growth since 2003 and the weakest sales increase in 14 quarters, as higher costs and rising competition made it harder to sustain revenue expansion.” The financial news service went on to note that Apple stock dropped 9 percent to $467.66 at 7:42 a.m. in New York after saying that profit was essentially flat and that quarterly revenue rose 18 percent but fell short of “$54.9 billion, the average analyst estimate compiled by Bloomberg.”

Apple reported that its gross margin was 38.6 percent compared to 44.7 percent in the year-ago quarter. International sales accounted for 61 percent of the quarter’s revenue.

And Apple said it sold a record 47.8 million iPhones in the quarter, compared to 37 million in the year-ago quarter. Apple also sold a record 22.9 million iPads during the quarter, compared to 15.4 million in the year-ago quarter. It sold 4.1 million Macs, compared to 5.2 million in the year-ago quarter. Apple sold 12.7 million iPods in the quarter, compared to 15.4 million in the year-ago quarter.

Some analysts are concerned. For instance Andy Castonguay, principal analyst at Informa Telecoms & Media, said, “The growing competitive pressures Apple is facing in the smartphone market means that the average revenue per iPhone will come under increasing scrutiny as the company expands its business in China and other growth markets where demand for lower-priced models is expected to outstrip iPhone 5 sales.”

He added, “Apple’s market leadership in the tablet market continues with a 48.1 percent year-on-year increase in overall tablet sales following the 2012 launches of the updated iPad model and the introduction of the iPad Mini. That outstanding volume increase was offset, however, by a sharp 21.3 percent decline in average revenue per unit from 4Q11. The lower price point and slimmer margins for the iPad Mini highlight the broader strategic challenges that Apple will face in 2013, namely how to enhance volume in an expanding set of countries without incurring a precipitous drop in profitability.”

He added, “Apple’s 4Q performance was not only hampered by supply-chain restraints, but also by increasing competition from Samsung and other manufacturers vying for the premium consumer market. With modest but growing sales of Windows Phone devices as well as a revived product line expected from BlackBerry, Apple’s products have begun to lose their “innovative” top luster, even while still representing the competitive standard in the industry.”

Canaccord Genuity analyst Michael Walkley commented on soft guidance for the coming quarter and noted, “We believe the soft March quarter guidance was due to Apple ramping supply of the iPhone 5 during the December quarter to high inventory levels, combined with the potential for an earlier-than-usual product transition during 1H/C2013 for the iPhone.”

He added “We maintain our belief Apple has a strong product pipeline that should result in reaccelerating Y/Y earnings growth during the June quarter. We reiterate our buy rating, but lower our price target to $650.”

And in the earnings statement Tim Cook, Apple’s CEO said, “We’re thrilled with record revenue of over $54 billion and sales of over 75 million iOS devices in a single quarter. We’re very confident in our product pipeline as we continue to focus on innovation and making the best products in the world.”