iPhone, iPad, Mac Sales Break Records, but Apple Results Disappoint Some

NEWS ANALYSIS: Rumors of an upcoming iPhone 5, a fiscally weak Europe and a Chinese market coming off an iPhone 4S release and waiting for a Mandarin Siri help explain (for some) how record-breaking numbers could disappoint Wall Street.

Apple fell short of analyst estimates July 24, despite posting a quarterly record for iPad sales, a June-quarter record for iPhone and Mac sales, and its highest-ever June-quarter revenue and earnings.

Tough crowd.


Pulling iPhone sales lower than expectations were the economic crisis in Europe€”sales in Europe were essentially flat, Apple CEO Tim Cook said during the July 24 earnings call€”delayed purchases due to expectations that an iPhone 5 is around the corner, and lower-than-anticipated sales from China, Apple€™s second-largest market behind the United States.

To the second point, Cook offered no specifics, instead repeating variations on a line about Apple€™s pipeline, which €œhas some amazing new products€ in it and which Apple could €œnot be more confident€ about.

Apple tries very hard, Cook added, €œto keep our product road map secret and confidential, and we go to extreme [measures], do extreme activities to try to do that. That, however, doesn€™t stop people from speculating or wondering. €¦ I€™m glad that people want the next thing. I€™m super happy about it.€

In greater China, Apple saw third-quarter revenue of $5.7 billion, which was a 48 percent year-over-year increase, said Cook, despite being down from $7.9 billion during its second quarter.

Cook explained the decline by noting that Apple launched the iPhone 4S in China in January, and in March began offering it through China Telecom. The decline, then, was €œmainly attributable to normal seasonality after the very successful iPhone 4S launch.€

While sales in greater China were up by only 66 percent, in mainland China, Apple€™s iPhone sales increased by 100 percent year-over-year.

Also explaining the relative weakness in China was that, following a trademark dispute, Apple was unable to launch the third-generation iPad in China until just days before the earnings call, and so the quarter didn€™t benefit from those sales.

Still further contributing was that the new MacBook Pro with Retina display that Apple introduced at its Worldwide Developers Conference (WWDC) June 11€”and which was €œincredibly well-received€ elsewhere, Cook said during the call€”didn€™t begin shipping to mainland China until €œlast week.€ This again seems to have eliminated potential sales from the quarter.

Some analysts were unconvinced.

The iPhone 4S €œis a little bit long in the tooth, when compared to other phones with better specs. To put it plainly, consumers are getting a little bit tired of the look of the iPhone 4 and the iPhone 4S,€ Beijing-based IDC analyst TZ Wong told Reuters.

Wong and other also pointed to devices such as the Samsung Galaxy S III, saying consumers want devices with (very) large displays and cutting-edge features.

This is not to say analysts are particularly worried about Apple.

Canaccord Genuity analyst Michael Walkley, in a July 25 report, wrote that his firm expects Apple to have strong December quarter results, to regain its global smartphone share through the holiday shopping season and to grow its €œleading share of industry profits.€

Walkley added that Canaccord checks €œindicate strong iPhone sales at China Unicom and China Telecom during the June quarter.€ They also expect, €œa TD-SCDMA [Time Division Synchronous Code Division Multiple Access] iPhone for China Mobile in early calendar 2013, and we believe this will result in continued strong growth for iPhone sales in China during Apple€™s [fiscal 2013].€

The China market has a particular incentive to hold off on purchases until the arrival of the next iPhone. Introducing the iOS 6 mobile platform at WWDC, which the next iPhone will undoubtedly run, Apple told developers that the operating system will offer its Siri digital assistant in additional languages, including Mandarin and Cantonese.

€œWe are very excited about our opportunity in China,€ Cook said during the call, €œand are very much looking forward to incorporating more local services.€

What consumers in China and elsewhere shouldn€™t hold out for, however, is a low-end, or low-cost iPhone. When asked about the opportunities at lower price points€”opportunities that Nokia, Research In Motion, Microsoft and others are aggressively grappling for€”Cook responded that Apple plans to keep doing what it does best. He explained:

"Our North Star is to maniacally focus on making the world€™s best products. Economic turmoil may push us side to side, but we€™re going to stay on that journey and stay focused on making the best products and not deviate from that. We€™ve seen again and again throughout the years that during these types of periods, where we distanced ourselves further from people that don€™t innovate, it increased the gap between us, and so that€™s what we€™re focused on.Now, when we can [hit] more aggressive price points, we€™re going to do that. We did that with the $399 iPad just a few months ago and the iPhone 3GS is free in the United States and in several other countries, and there has been quite a lot kicked off the price a bit in certain other markets. So, our North Star will continue to be making the best products in the world. That€™s how we breathe, that€™s how we live and we€™re not changing that."

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