Apple Earnings Prompt iPad Questions - InformationWeek

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10/25/2012
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Apple Earnings Prompt iPad Questions

Lower than expected iPad sales suggest limits to Apple's recent growth.

iPad Mini Tablet: Visual Tour
iPad Mini Tablet: Visual Tour
(click image for larger view and for slideshow)
Apple's fiscal 2012 fourth quarter revenue grew 24%, meeting expectations, but the company's earnings per share came in lower than expected.

Thursday, Apple reported quarterly revenue of $36 billion and quarterly net profit of $8.2 billion, which works out to $8.67 per share. That's just shy of the $8.75 per share average estimate from financial analysts. It's also twice the revenue Microsoft reported in July.

Apple's stock slid seven points during trading prior to the company's earnings release, and continued trending downward slightly in after-hours trading. If there's a reason to be disappointed, it may have to do with the sale of iPads.

Analysts had expected Apple to sell something like 17 million iPads, but the company said it had sold 14 million, an increase of 26% from a year earlier, but not quite the blowout that investors would have liked to see.

In addition, Apple on Tuesday introduced the iPad Mini, which could reduce sales of its larger sibling while limiting Apple's profit margin. On a conference call for investors, Apple CFO Peter Oppenheimer said that the iPad Mini's gross margin "is significantly below" the average gross margin for the company's products.

[ Learn more about the iPad Mini Display: Not Good Enough? ]

The iPad Mini was widely anticipated for months, and CEO Tim Cook noted that customers do sometimes delay purchases amid rumors of new products, as much as he might wish otherwise. This may have reduced iPad sales over the summer.

Cook dismissed concerns that the iPad Mini might cannibalize iPad sales, saying it's better for Apple to cannibalize its own products than for a competitor to do so. He suggested that iPad sales will continue to grow as more and more customers opt for a tablet instead of a desktop or notebook computer.

Asked about the impact of Microsoft's Windows 8 Surface tablet, Cook said he hadn't used one but said that based on what he'd read about it, it seems to be "a fairly compromised, confusing product."

Creating a product as well-designed as the iPad is hard, Cook suggested. "I suppose you could design a car that flies and floats, but I don't think it would do all of those things very well," he said. "When people look at the iPad versus competitive offerings, they're going to conclude that they really want an iPad."

Apple sold 26.9 million iPhones during the quarter, up 58% from fiscal Q4 2011. It sold 4.9 million Macs, a 1% increase from the same period a year ago, at a time when the overall PC market is shrinking. iPod sales reached 5.3 million, a 19% increase from same quarter last year.

Cook brushed aside concerns expressed about challenges from low-cost competitors. "Our focus on making the best product is what will win at the end of the day," he said.

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