Apple Inc. Dives After Hours on Disappointing iPhone Sales

The Mac maker comes well short of Street estimates. Is the iPhone 5c to blame?

Jan 27, 2014 at 5:37PM

After two quarters of delivering better-than-expected results, Apple's (NASDAQ:AAPL) fiscal first-quarter revenue and iPhone sales figures came in well short of targets. An after-hours sell-off drove the stock down more than 5% in the minutes following the report's release.

But is the dumping merited? Let's review the numbers. Apple reported $14.50 a share in profits on $57.6 billion in revenue. Analysts were expecting $14.09 a share and $57.46 billion, respectively, according to Yahoo! Finance. The real challenge becomes clear when you look at Apple's product-by-product results:

Product
Actual
Median Projected
Last Year
Y-o-Y Growth

iPhones sold

51.025 million

55.39 million

47.789 million

6.8%

iPads sold

26.035 million

24.87 million

22.860 million

13.9%

Macs sold

4.837 million

4.61 million

4.061 million

19.1%

Sources: Fortune, Apple SEC filings.

Analysts were looking for at least 4 million more iPhone handset sales. Not unreasonable when you consider the initial enthusiasm for the 5s, though, to be fair, some analysts (presciently, it seems) were cutting their estimates of iPhone sales ahead of this afternoon's report.

Could the iPhone 5c be part of the problem? As early as October, we began hearing reports that Apple was cutting production on the 5c after a series of retailers lowered prices on the device. Offering a cheapskate edition of its signature product may not have had the effect Apple CEO Tim Cook intended.

Unfortunately, the problems don't end there. Apple estimates just $42 billion to $44 billion in fiscal second-quarter revenue. That's essentially flat year-over-year growth at the midpoint, and well short of the $46.05 billion analysts had been calling for. Anyone else wondering if Apple isn't expecting nearly as much from the China Mobile (NYSE:CHL) deal as some would like to believe?

On the plus side, Apple appears to have two hits on its hands in the iPad Air and the iPad Mini With Retina Display. Surging Mac sales are also a good sign, as is the company's ever-improving cash position:

Metric
Fiscal Q1 2014
Fiscal Q4 2013
Fiscal Q3 2013
Fiscal Q2 2013

Cash and investments

$158.842 billion

$146.761 billion

$146.620 billion

$144.687 billion

Debt

$16.961 billion

$16.960 billion

$16.958 billion

$0

Free Cash Flow

$20.685 billion

$7.853 billion

$5.943 billion

$10.496 billion

Sources: Apple SEC filings, S&P Capital IQ.

Expect Carl Icahn to use those figures -- and the Mac maker's top-line miss and weak revenue estimate -- to further his argument in favor of having Apple return at least $50 billion to shareholders in the way of stock repurchases. Do you agree? What do you think of Apple's fiscal first-quarter report and disappointing iPhone sales? Leave a comment below to let us know where you stand.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple at the time of publication. Check out Tim's Web home and portfolio holdings, or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends Apple and owns shares of Apple and China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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