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Major Takeaways From Apple Inc's Quarter

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Apple (NASDAQ: AAPL  ) has released its first-quarter earnings report and it landed on the market with a thud. Investors were decidedly unimpressed with the technology giant's results, as the stock declined as much as 8% on the day of its announcement.

In the immediate aftermath of an earnings report that resulted in so much carnage for Apple's stock price, it's tempting to overreact. The results were only disappointing because of what analysts had expected. A deeper analysis of Apple's report reveals a company that is still massively profitable, and by many measures, had its best quarter ever.

A record quarter
Apple posted record quarterly revenue of $57.6 billion, up nearly 6% versus the same quarter last year. In terms of device volumes, Apple sold 51 million iPhones and 26 million iPads during the quarter, which were both quarterly records. This resulted in earnings per share of $14.50, which represents 5% growth year over year.

It's confusing to see such an overwhelmingly negative market reaction to a report that seemed fairly solid. Apple posted growth in revenue and earnings per share, and sold more iPhones and iPads than ever before. And yet, investors rushed for the exit after the results.

It seems Apple was hurt in two key areas. First, while its iPhone sales figure was indeed impressive, it failed to meet analyst expectations. Sell-side research analysts were widely expecting Apple to come up with 55 million iPhones sold.

Second Apple's forecast left a lot to be desired. Apple expects to generate $43 billion in current-quarter revenue at the midpoint of its guidance. Analysts were hoping for nearly $46 billion in revenue for its next quarter. Should Apple produce $43 billion in sales, that would represent a year-over-year decline from last year's March quarter.

Other ways to play the smartphone market
Apple's earnings call was disappointing only in the sense that it failed to hit analyst expectations. Whether that should be held against Apple to such an extent is a reasonable question to ask. Nevertheless, if your interested in accessing the booming global smartphone market, there are other opportunities.

However, it's worth noting other smartphone industry giants are experiencing their own share of problems. Samsung (NASDAQOTH: SSNLF  ) struggled in its own most recent quarter. Samsung's flagship mobile devices division posted an 18% drop in operating profit on a quarter-to-quarter basis during the holiday period.

It seems that the device makers themselves are struggling with a holiday season that disappointed most analyst expectations. As a result, investors still interested in gaining exposure to the mobile device market might want to consider chipmaker Qualcomm (NASDAQ: QCOM  ) .

Qualcomm's chips are used in a wide range of devices, thereby offering diversification across the industry. Qualcomm is simply excelling while Apple and Samsung struggle. Qualcomm's revenue jumped 33% in the fourth quarter. Its earnings-per-share grew 18% year over year.

Going forward, management is extremely optimistic, thanks to the fact that Qualcomm's chips are popular in most major smartphone devices. Chief Executive Offer Paul Jacobs stated, "Our technologies underpin the global growth of wireless data, and our semiconductor solutions are used across the industry's flagship smartphones." This is why management expects double-digit revenue and earnings growth compounded annually over the next five years.

The Foolish conclusion
Apple generated growth in its most recent quarter, but it wasn't good enough due to fairly aggressive expectations. Going forward, Apple will need to demonstrate it still has viable avenues for growth. In the meantime, investors who want exposure to the growing mobile device market may want to consider Qualcomm. That's because Qualcomm is still growing at double-digit rates, and will offer a measure of protection against any single smartphone device falling out of consumer favor.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 30, 2014, at 12:09 PM, EdMan wrote:

    Good article and facts but I wish you would elaborate more on the so called "analysts" and how do they come up with their estimates and why is are they always taken to be correct. Whey are they the "analysts" correct and the big Apple wrong? who said so?

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Bob Ciura

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.

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