On Tuesday Apple announced second quarter results that slightly beat Wall Street’s lowered estimates by selling more iPads and iPhones but its net quarterly profit still dropped 18 percent, marking the company’s first year over year profit decline in a decade as the company faces stiffer competition and waits to launch its new products.
Apple announced second quarter earnings of $10.09 a share on revenue of $43.60 billion, surpassing estimates of $10.00 per share on revenue of $42.33 billion, according to consensus estimates from Thomson Reuters.
Apple’s revenue for the second quarter increased 11 percent to $43.6 billion from 39.2 billion in the second quarter of 2012 led by strong sales with its iPads and iPhones.
Apple sold 37.4 million iPhones in the second quarter 2013, up by 2.3 million or 7 percent from the 35.1 million sold in the second quarter of 2012.
During the conference call, Apple CEO Tim Cook reported that the latest monthly research published by comScore shows that iPhones gained the number one spot in the U.S. smartphone market for the three-month period ending in February with 39% share, up from 35% in the previous period.
Despite those gains in the United States, Apple is still losing global smartphone market share to companies like Samsung that produce cheaper smartphones in developed countries and are also capable of competing in the high-end smartphone markets that Apple has dominated for years.
Apple may decide later this year to release a cheaper iPhone for developed world as it waits to receive approval for a new agreement deal with China Mobile, the largest cell phone provider in the world, with an estimated 700 million subscribers.
Apple posted strong iPad sales of 19.5 million in the second quarter which is 7.7 million greater than the 11.8 million that were sold in the 2nd quarter of 2012.
In China iPads grew 138% year-on-year, setting a new record.
Apple’s second quarter revenue in China came in at $8.8 billion, marking the best quarter ever in China.
Apple guided lower for the next quarter with revenue of between $33.5 billion and $35.5 billion, lower than the $38.25 billion Wall Street was expecting.
Apple also expects its gross margin to continue to slide to between 36 percent and 37 percent from 37.5 percent currently.
CEO Cook admitted for the first time on the earnings call that growth is slowing at Apple.
“We acknowledge that our growth rate has slowed,” he said.
Cook later said that Apple’s falling stock price has been disappointing as well.
“The decline in Apple stock over the last couple of quarters has been very frustrating to all of us. But Apple remains very strong and we will continue to do what we do best” Cook emphasized.
Cook hinted that Apple’s new products won’t be released until the end of 2013.
“I’m just saying we’ve got some really great stuff coming in the fall and in all of 2014” Cook said during the conference call.
One new positive development that Apple can boast about is the decision to create more value for their shareholders by sharing its new quarterly cash pile of $145 billion which grew larger from $137 billion in the last quarter.
Apple announced on Tuesday that the company plans to return $100 billion to shareholders by the end of 2015 through increasing its dividend 15 percent and expanding its share buyback program to $60 billion, up from $10 billion now.
The share buyback expansion represents the largest share buyback authorization of any company in history.
Apple also becomes the largest dividend payers in the world with annual payments to their shareholders of around $11 billion.
Apple’s dividend board of directors has declared a dividend of $3.5 per common share, payable on May 16, 2013, the shareholder’s record as of the close of business on May 13, 2013.
Apple Moving Forward
Otto Waser, chief investment officer at R & A Research and Asset Management AG, was interviewed today on Bloomberg’s First Look from Zurich.
Waser weighed in about Apple’s prospects heading into the next quarter with no new products coming into play and a weaker revenue forecast from Apple that does not even meet Wall St. estimates.
“It’s a very difficult situation for Apple still. I think the company has not shown to the market that its fundamentally turning around” Waser said.
“I think that will prevent a rally in the next few months. Apple has to return to fundamental growth, bottom line growth, and I think that will be a boost” Waser added.
“On the other hand I think that the announcement of returning up to a $ 100 billion in cash until 2015 will help to stabilize the stock” he said.
Waser described Apple’s stock as “dirt cheap” but he later admitted , “We don’t think a rally is imminent given the still relatively poor expectations we have for the current quarter.”