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Major Takeaways From Apple Inc's Quarter

Bob Ciura
January 29, 2014

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