This Apple Is a Disappointment

Make that two consecutive misses. After failing to meet Wall Street estimates for both revenue and profits in its fiscal third quarter, Apple (Nasdaq: AAPL  ) failed on the bottom line in Q4.

The Mac maker reported $8.67 a share in profits on $35.97 billion in revenue. Analysts were expecting $8.75 a share of profit on $35.80 billion in revenue, according to Yahoo! Finance.

For the full year, Apple booked $44.15 in per-share earnings on $156.5 billion in revenue. Wall Street wanted $44.29 and $156.27 billion, respectively.

No one seems happy with the numbers. The Nasdaq halted trading in Apple stock, while the PowerShares QQQ (Nasdaq: QQQ  ) , which generally mirrors the performance of the Nasdaq Composite, of which Apple is a member, fell more than 1% in after-hours action.

Worse than expected performances across the major hardware lines seems to be culprit. Here's where iPad, iPhone, and Mac sales came in during fiscal Q4 versus the median projections compiled by Fortune:

Product

Actual

Median Projected

Last Year 

Y-o-Y Growth

iPhones sold

26.910 million

28.05 million 

17.07 million

57.64%

iPads sold

14.036 million

16.50 million 

11.12 million

26.22% 

Macs sold

4.923 million

4.60 million 

4.89 million

0.67% 

Sources: Fortune Magazine, Apple press release.

Of all the numbers here, iPad sales have to be the most disappointing. At just a shade over 14 million, the iPad no longer looks like the PC destroyer that it seemed to be last week. Unit sales fell 18% sequentially -- even worse than my Foolish colleague Evan Niu predicted. Strong sales of the Nexus 7 tablet, and pent-up demand for Microsoft's (Nasdaq: MSFT  ) surprising Surface tablet, might also have been a factor.

Mac sales also stalled, in line with what Foolish Apple analyst Eric Bleeker expected. Earlier, research firms Gartner and IDC said Apple's U.S. desktop and laptop sales slowed between 6% and 7% in fiscal Q4.

Finally, iPhones sales nudged ahead of Wall Street's lowered target of 25 to 26 million units but, at 26.91 million handsets sold, still fell short of the consensus median. Smartphone revenue increased 5% sequentially and 56% year over year.

What remains to be seen is how big Apple expects the iPhone 5 to contribute to the holiday quarter now under way. Should a weak opening weekend for the handset have investors curtailing expectations?

Either way, the stakes are high and the opportunity is huge, so to help investors understand this epic Apple event, we've just released an exclusive update dedicated to the iPhone 5 launch. By picking up a copy of our premium research report on Apple, you'll learn everything you need to know about the launch, and receive ongoing guidance as key news hits. Claim your copy today by clicking here now.


Read/Post Comments (33) | Recommend This Article (24)

Comments from our Foolish Readers

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  • Report this Comment On October 25, 2012, at 6:44 PM, chastenruin wrote:

    There are so many false premises in this article.

    Firstly, Apple still sold more iPhone 5's on opening weekend than any other phone they have sold. They broke their own records. Yet, thats somehow bad.

    Secondly, if Apple lived in a vacuum, then there might be some reason to be disappointed by this earnings report. Apple doesnt live in a vacuum, so compared to the rest of the industry, Apple is destroying every single one of its competitors in sales, profit margins, revenues and volume. Where all the other tablet manufacturers are reporting losses, Apple is reporting double digit gains...the only problem being they are under the overhyped analyst expectations.

    Apple is far from dead. Read the dang report. That's still a company thats crushing the rest of their competition, has a new product released last week and is heading into its strongest quarter of the year. They have had multiple quarters of growth, not losses. Microsoft, Google, Amazon all reported exceedingly bad quarters. Apples earnings are unprecedented when compared to the rest of the industry.

    I'm still way long in Apple, and I am not one of those idiots that sells on every whiff of news that's perceived to be bad based on a bunch of analysts who perpetually call the market wrong.

  • Report this Comment On October 25, 2012, at 6:47 PM, applefan1 wrote:

    Jeez, they have a 57.6% increase in iPhone sales in the slowest quarter of the year when a new product gets announced with only 9 days worth of sales?

    At least Apple didn't have any major product have a negative growth rate.

    I guess the impending news of new iMacs, Macminis, iPad mini, the shocking iPad 4 update, and 13 inch MBP Retina was possibly holding things up. I know I am holding out for the announcement of the some of the products being introduced.

    I see Apple sandbagging the December quarter, with spill over into the next.

  • Report this Comment On October 25, 2012, at 6:54 PM, jdmeck wrote:

    Don't worry Tim, next quarter they will smash all sales records.

  • Report this Comment On October 25, 2012, at 6:55 PM, jda24601 wrote:

    If your premium research report is as well thought out as this blog, then I think I'll pass. Apple is selling every product it can manufacture. It is working hard and apparently succeeding at improving the supply. While other tech companies are losing money, Apple's profits continue to increase year after year and quarter after comparable quarter. The new product updates look very good, including the two Macs. I waited three weeks for my new iPhone. I waited a month for my new Nano and iPod Touch. The problem is with supply keeping up with demand. It is not slackening demand. Yet there seems to be a blogger hysteria every quarter around this time with everyone trying to grab the reader's attention with doomsday predictions. I have to admit, you drew me in with the sexy title, but your analysis and factual assumptions did not meet expectations.

  • Report this Comment On October 25, 2012, at 6:56 PM, ajschloss wrote:

    Let me get this straight. Apple made billions this quarter (and many quarters before) and has a PE of 14.5 (trailing 12 months) and its stock is beaten. Amazon hardly makes any money and it is trading at a PE of 282. Keep it up Apple, I’ll stick with you.

  • Report this Comment On October 25, 2012, at 6:59 PM, Rouleur wrote:

    I have to say I am disappointed by this article by TMF because it is like many of the other knee-jerk reactions. No offense, but I expect better. As already stated, the i-phone had the best first weekend in history, and is currently backlogged. They could not make enough to meet demand. They have not released it in most INTL markets yet. Mac sales are growing while PC sales are slowing. I-Pad is growing, and they just had a refresh. They actually beat on revenue, and much of the miss on earnings was on currency, yet to be delivered i-phone sales. The quarter was not gangbusters, but this is a stock growing at above 20% YOY with a forward P/E of 12.5 and below 10 when you back out cash. The above article wreaks of an overreaction rather than listening to the call (like I did) and then making a better, educated assessment.

  • Report this Comment On October 25, 2012, at 7:38 PM, jwh7610fool wrote:

    Tim,

    What a disappointment. If only all my holdings could disappoint like this while carrying a p/e below 15. I would be crying all the way to the bank... I expect more from TMF, c'mon!

  • Report this Comment On October 25, 2012, at 7:45 PM, randallwaechter wrote:

    Please keep sending out headlines like this. Hopefully the stock price will take a BIG hit tomorrow morning so I can buy more shares on sale....

  • Report this Comment On October 25, 2012, at 8:04 PM, Borbality wrote:

    Sort of shows the insanity of share prices being determined largely based on estimates that are almost always dead wrong!

    I guess that's half the "fun" of it!

  • Report this Comment On October 25, 2012, at 8:49 PM, jordanwi wrote:

    What do you people want from Tim? He's telling it as it is, you dolts! The market goes up and down based on day to day news. If you all are such dyed-in-the-wool apple bulls, take this as an opportunity to buy 6/7 off it's high! Don't whine about your bullish case, if you're right, you're right. The long run will flesh out Apples case. I'm a bull too, but I don't sit on these comment boards whining that nobody is hyping the quarter. They missed. Get over it.

  • Report this Comment On October 25, 2012, at 9:16 PM, Frisia wrote:

    What is the problem here?

    Is it a lack of performance from Apple or is it because of too high expectations from "The Street" ?

    Analyzing the financial data, I would say that Apple is doing very well and is an atractive buy, especially now the "Hype Buyers" have sold their shares.

  • Report this Comment On October 25, 2012, at 9:35 PM, Rouleur wrote:

    Frisia,

    People have a right to voice their opinion. There are some mistruths like " a weak opening weekend" for the i-phone 5 when it sold the most in any opening weekend, and they sold as much as they could make to date. There are several things things that would be misconstrued by people who are not familiar with the company. I am not a myopic bull, I just think posts made right after the earnings print without context of the details can mislead people who don't follow closely. That is why it dipped 3.5% and is now up in after hours.

  • Report this Comment On October 25, 2012, at 9:39 PM, Rouleur wrote:

    sorry, that was meant for Jordan.

  • Report this Comment On October 26, 2012, at 12:11 AM, jamesshuk wrote:

    I guess my problem is you say they missed both estimates and then post that Apple exceeded Revenue 35.97 reported vs 35.80 analyst expected. How is that missing both ?

  • Report this Comment On October 26, 2012, at 12:57 AM, somethingnew wrote:

    I don't understand why aapl was halted in after hours trading. According to msn, it fell around 2%. I don't understand why this warranted a halt. If anyone can explain this to me, I'd appreciate it. I don't know if maybe it was because of sheer volume or point decrease. I'm confused by this. Anyone? Thanks.

  • Report this Comment On October 26, 2012, at 6:51 AM, portillobw wrote:

    I respectfully disagree. Expectations from Wall Street have always been too high! I have little respect for these pundits any more. What we saw was a solid performance with more to come. AAPL will continue to be one of the dominant players in the smartphone market and certainly the dominant player in the up market tablet markets which seems to be taking the place of desktops and even laptops in many market segments. AAPL has certainly not tapped all the demand out there and they sit with a pristine balance sheet, great cash flow and too much cash if anything! Again, if anything, I was disappointed that they didn't increase the dividend, declare a special dividend or split the stock, but I know I'm getting ahead of myself.

  • Report this Comment On October 26, 2012, at 9:07 AM, dl44t wrote:

    First off, we should be grateful to Tim for his willingness to put "fool" in his moniker. Truth in advertising is a rare thing these days.

    Second point, The analysts have ...never... been right about AAPL; for years they underestimated the earnings, now after that decade of embarrassment, are in an era of over estimating.

    Anyone would look to these halfwits for guidance should also consider adding "fool" to their handle.

  • Report this Comment On October 26, 2012, at 9:22 AM, Mathman6577 wrote:

    Tim:

    As usual your article was well researched and written. I'm sure all of the numbers stack up. However, the actual performance of Apple does not match the article. I do not agree with the overall and underlying message it seems to imply. Apple negative bias perhaps?

    A company that increases its quarterly EPS and revenue by more than 25% year over year and provides guidance for about a 15% increase in revenue and projection for record iPhone sales for the next quarter shouldn't be characterized as a dissappointment in my book. Note that the iPhone is the gateway into the Apple ecosystem. Increased sales there usually translate into better results in iPads and Macs.

    My thought are that the so-called analysts and bloggers who provide the "whisper consensus" are "overanalyzing" the company and the stock (or they are shorting the stock and shouldn't be commenting on it in the first place).

    A simple read of the Apple statement indicates that the "miss" in iPad sales (although up 14% -- who wouldn't take that?) was due to consumers waiting for the iPad mini to be released. The same thing happened to iPhone4s sales before the 5 was released. As it turns out all the analysts and pundits were wrong as iPhone sales are now exploding. Why would anyone listen to those same people again ? If I ran the company they worked for I would suggest that they find a new line of work.

    How about Amazon and CMG? Both of which seem to be held in much higher regard by the Motley Fool staff and others even with their lowered and (even negative earnings in the case of Amazon)?

  • Report this Comment On October 26, 2012, at 9:22 AM, ColoK wrote:

    Tim, how well is your portfolio doing?

    IMHO we all need to get used to Apple becoming a "regular" growth company, with annualized 15-25% expansion. The days of 40-90% growth are over.

    Does this mean Apple is no longer a good investment (not trade, investment)? No. It still,is an excellent investment...

  • Report this Comment On October 26, 2012, at 10:22 AM, AjGasp wrote:

    For every freaking article Fool.com wants to sell you something. It is impressive and honestly you have yo be a fool to buy some research after this article.

    Apple misses the last 2 quartes and still outperforms every company in every segment. And in the meantime it is an awesome investment.

    Because of writers like these, most of the people fail to understand what really drives a company: It's creativity, innovation, products, ability to execute and deliver.

    I expect better Tim, so get your act straight.

  • Report this Comment On October 26, 2012, at 11:28 AM, TMFMileHigh wrote:

    Hi all,

    I'll try to address most comments. First let's dig into what you asked me, @ColoK:

    >>Tim, how well is your portfolio doing?

    Pretty well historically, thanks, but lagging year-to-date.

    Our family portfolio (and this number includes all assets, including uninvested cash and reinvested dividends) has returned 10.5% year-to-date, trailing the S&P 500 by 1.5%. Apple is my largest position.

    On a rolling basis (through Sept. 30), the portfolio is up 17.68% annualized over the past 3 years and 8.61% over the past five. In each case, I'm outperforming the S&P 500 (with dividends reinvested) by 4.48% and 7.56% annually.

    You can also see my CAPS scorecard here:

    http://caps.fool.com/player/tmfmilehigh.aspx

    And my weekly real-money Big Idea Portfolio update here:

    http://www.fool.com/investing/general/2012/10/21/the-stupid-...

    If ever you want to check my latest holdings, navigate over to the info tab at my Fool profile:

    http://my.fool.com/profile/TMFMileHigh/info.aspx

    Does this help?

    Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On October 26, 2012, at 11:31 AM, TMFMileHigh wrote:

    @chastenruin,

    >>Apple is far from dead. Read the dang report. That's still a company thats crushing the rest of their competition, has a new product released last week and is heading into its strongest quarter of the year.

    Did I say Apple was dead? I'm not seeing that.

    Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On October 26, 2012, at 11:32 AM, TMFMileHigh wrote:

    @jdmeck,

    >>Don't worry Tim, next quarter they will smash all sales records.

    That would be so awesome.

    Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On October 26, 2012, at 11:35 AM, TMFMileHigh wrote:

    @jwh7610fool,

    >>What a disappointment. If only all my holdings could disappoint like this while carrying a p/e below 15. I would be crying all the way to the bank... I expect more from TMF, c'mon!

    Your problem isn't with me or TMF, it's with analysts.

    There's no disputing that Apple missed the average Wall Street profit estimate for two quarters running.

    Thanks for writing and Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On October 26, 2012, at 11:38 AM, TMFMileHigh wrote:

    @ jda24601,

    >>I have to admit, you drew me in with the sexy title, but your analysis and factual assumptions did not meet expectations.

    Please do tell. Where did I report errant facts?

    Thanks much and Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On October 26, 2012, at 11:43 AM, TMFMileHigh wrote:

    @JAF1975,

    >>The above article wreaks of an overreaction rather than listening to the call (like I did) and then making a better, educated assessment.

    I'll grant that the article came out ahead of the call but that was an intentional editorial decision -- the story reports the facts of the report.

    Context in the latter half relates to the facts, estimates, and predictions we had leading into the report.

    While I do appreciate your thoughts, I think it's important to point out that never once did I say "sell."

    The headline states exactly what happened -- for two consecutive quarters now, Apple has disappointed on the basis of estimates.

    Thanks for writing and Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On October 26, 2012, at 11:48 AM, TMFMileHigh wrote:

    @dl44t,

    >>Second point, The analysts have ...never... been right about AAPL; for years they underestimated the earnings, now after that decade of embarrassment, are in an era of over estimating.

    You're absolutely right. And how many times have you congratulated yourself for owning Apple when it reported numbers that absolutely destroyed estimates?

    Thanks for writing and Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On October 26, 2012, at 11:50 AM, Rouleur wrote:

    Actually, Tim, they beat on consensus revenues. It might also be worth noting they beat their own estimates. They also did not have disappointing first weekend sales of I-phone. Instead, they were record breaking. Anyway, I have read and appreciated many of your posts and recommendations over the years, but in this case, I respectfully disagree with the article's timing and some of the assertions.

  • Report this Comment On October 26, 2012, at 11:50 AM, TMFMileHigh wrote:

    @AjGasp,

    >>Because of writers like these, most of the people fail to understand what really drives a company: It's creativity, innovation, products, ability to execute and deliver. I expect better Tim, so get your act straight.

    That would be fair criticism if all we ever reported on were the numbers and Wall Street's hand-wringing. I think you're well aware that's not the case, sir.

    Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On October 26, 2012, at 11:56 AM, TMFMileHigh wrote:

    @JAF1975,

    >>Actually, Tim, they beat on consensus revenues. It might also be worth noting they beat their own estimates.

    Once more, the lede:

    Make that two consecutive misses. After failing to meet Wall Street estimates for both revenue and profits in its fiscal third quarter, Apple (Nasdaq: AAPL ) *failed on the bottom line* in Q4.

    >>I have read and appreciated many of your posts and recommendations over the years, but in this case, I respectfully disagree with the article's timing and some of the assertions.

    Fair enough. We appreciate diversity of viewpoints here. Grappling with opposing views often leads to better overall investment results.

    Thanks again and Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On October 26, 2012, at 12:12 PM, Mathman6577 wrote:

    The stock is down 3%. That's what happens what the hedge funds get into the fray and all thinking stops.

  • Report this Comment On October 26, 2012, at 1:03 PM, Mathman6577 wrote:

    Tim:

    I think a lot of the comments stem from the term "disappointment" in the title. The results only disappointed those analysts and fund managers that had pegged Apple to have much higher earnings, which was actually only a handful. Apple actually beat most analysts estimates and even themselves.

    And I thought that the Fool has a charter to promote long term investment instead of short term thinking about quarterly results.

    I'd like to see an analysis from the Rule Breakers about how these results stack up against the 5-year or even 10-year trend. I think Apple is still a Breaker and not a Tweener or a Maker.

  • Report this Comment On October 26, 2012, at 4:07 PM, TheRealRacc wrote:

    Fool writers must cringe every time they publish an AAPL article. I have so much sympathy and respect for all author's responses on these articles.

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