Apple Inc. (AAPL)’s forecast for the
slowest holiday sales growth in a half decade reflects how
iPhones and iPads aren’t providing the growth surges they once
did as competition accelerates in the saturated mobile market.
The trend was outlined yesterday when Cupertino,
California-based Apple said revenue for the current quarter
would be $55 billion to $58 billion, up 0.9 percent to 6.4
percent, from $54.5 billion a year earlier. That would be the
slowest holiday-sales rise since 2008, when
revenue jumped 6
percent. Profit will be about the same as last year, based on
Apple’s predictions for gross margins.
The forecast is a turnaround from previous years such as
2011 and 2012 when Apple saw holiday sales swell by more than 70
percent. While Apple’s devices have upended the technology
industry, Chief Executive Officer
Tim Cook has overseen a stock
fall of 25 percent in the past year as profit declined for the
first time in a decade. The world’s most-valuable company is
grappling with competitors led by
Samsung Electronics Co. (005930) that
are exerting pricing pressure through lower-priced smartphones
and tablets.
“The question is, can they return to growth?” said
Walter Piecyk, an analyst at BTIG in
New York. “You had a company that
was growing, and then it went negative.”
There are signs Apple will regain its footing in 2014, with
profit margins stabilizing and sales in countries like
China
expanding, said Piecyk. The company generated $5.73 billion in
China last quarter, up 5.6 percent from a year earlier, while
sales in
Japan rose 41 percent to $3.34 billion after it forged
a deal with the country’s largest carrier,
NTT Docomo Inc. (9437), to
sell the iPhone.
Bright Spots
“The product line is seeing strong demand,” said Laurence Balter, an analyst at Oracle Investment Research. “They need to
get back on a positive climb.”
Apple is rolling out new iPhones and iPads for the end-of-year shopping season, which is the company’s most important
quarter. Cook, speaking on a conference call yesterday, said the
new iPhone 5s is backlogged and that he expects new iPads to be
similarly popular.
Apple will begin selling a new iPad Air Nov. 1, followed
later in the month by an updated iPad mini with a high-definition screen.
“It’s going to be an iPad Christmas,” Cook said on the
call. He also hinted that products are in development for
release next year, including new categories where the company
doesn’t currently do business.
Battling Competitors
New
products would help expand Apple’s sales as the
smartphone and tablet markets have become more crowded. Apple
had about 13.4 percent of the global smartphone market last
quarter, down from 15.6 percent last year, according to market
researcher
Strategy Analytics. Samsung’s share rose to 35.2
percent from 32.9 percent. Apple’s share of the tablet market
has also declined, as rivals introduce new products and lure
customers with lower-cost alternatives.
The competition has hit Apple’s gross margins, as the
company faced higher costs to introduce its new iPhones and
iPads ahead of the holidays. The company forecast margins of
36.5 percent to 37.5 percent for the current quarter, compared
with analysts’ projection for 38 percent on average, according
to estimates compiled by Bloomberg. Gross margins are closely
watched by investors because it indicates how well the company
is managing costs.
Apple fell as much as 5.1 percent in extended
trading after
it released quarterly results, then recovered to almost its
closing level of $529.88 after Chief Financial Officer
Peter Oppenheimer said margins would have been better, if not for a
new accounting method Apple is using for software.
IPhone, IPad
Apple said sales for its fiscal fourth quarter ended in
September rose 4.2 percent to $37.5 billion. IPhone sales,
including about a week of the new 5s and 5c models on store
shelves, were 33.8 million, more than the 32.8 million predicted
by analysts on average in a Bloomberg survey. The company also
sold 14.1 million iPads, compared with an estimated 14.3
million. Apple sold 4.6 million Mac computers.
Profit for the quarter fell 8.6 percent to $7.51 billion,
or $8.26 a share, above the $7.92 projected by analysts on
average and the third-consecutive period of declines.
“This is a company that has routinely blown the doors off
their estimates, so meeting or just exceeding is probably a
disappointment,” said
Jack Ablin, chief investment officer at
BMO Private Bank, which has $66 billion under management.
Margins Bottoming?
CFO Oppenheimer said gross margins are being weighed down
by higher costs for new products, currency pressure from
conversions in Japan and
Australia, and an accounting change
related to revenue adjustments for software that the company is
now giving away for free with new iPhone, iPads and Macs.
Without the deferred revenue, Apple’s gross margin outlook
would have been about 38 percent, Oppenheimer said.
“We’re going to work hard to work down the cost curve,”
he said.
If Apple hits the high-end of its forecast for gross
margins in the current quarter, it would the first time in five
quarters they haven’t declined. Margins hit a record 47 percent
in 2012.
“Apple is laying down some markers that it’s not a broken
growth company,” said David Rolfe, chief investment officer at
Wedgewood Partners Inc.
Read More : http://www.bloomberg.com/news/2013-10-29/apple-forecasting-slower-holiday-sales-amid-samsung-gains.html