Apple shares fall on flat earnings report, as firm warns of a revenue slowdown ahead


The Apple Inc. logo is seen in the window of a store in New York, U.S., on Thursday, Jan. 23, 2014. Billionaire investor Carl Icahn said he increased his stake in Apple Inc. by another $500 million, bringing his total holdings in the iPhone maker to about $3.6 billion as he reiterated calls for a bigger stock buyback. Photographer: Ron Antonelli/Bloomberg (Ron Antonelli/Bloomberg)

Sales of Apple’s iPhone hit record levels again during the holiday season, the company reported Monday, but they still managed to miss analysts’ expectations amid flat profits and stiff competition in the smartphone market.

Apple also cautioned that it is due for a slowdown in revenue, helping send its stock down nearly 8 percent in after-hours trading. The company said it forecasts between $42 billion and $44 billion in revenue in the next quarter, well below analysts’ expectations of about $46 billion.

For its fiscal first quarter, which ended Dec. 28, the firm reported earnings per share of $14.50 on $57.6 billion in revenue, slightly better than consensus estimates of $13.47 per share on $57.5 billion in revenue.

Colin Gillis, an analyst at BGC Financial, downgraded the firm from buy to hold on Monday, saying that while the technology giant has strong potential in markets such as wearable technology and mobile payments, it has to move quickly into those spaces. “Apple is lagging” in critical growth areas and not making full use of assets such as iTunes, he said.

Despite hitting a record, iPhone sales of 51 million during the quarter were below the 54 million expected. It also sold 26 million iPads, in line with analysts’ expectations.

Apple chief executive Tim Cook said that sales may have been slightly softer than expected because the firm miscalculated demand for its new iPhone 5c, a plastic-backed, slightly cheaper smartphone aimed at the mid-range of the market. Customers were more interested, he said, in the high-end iPhone 5s, which sports a fingerprint sensor, and Apple needed some time to adjust to those demands.

“It took some time to build the mix that customers were demanding,” he told analysts on the company’s earnings call.

Still, Apple’s warning of a revenue slowdown reflects the stiff competition it is facing in the smartphone market. Apple’s iPhone sales grew 7 percent during the past year, while the smartphone market grew 14 percent, analysts often note. Rival Samsung is also facing a tough market, reporting a smaller-than-
expected profit for its mobile division last week and cautioning that demand was likely to remain soft in the coming year.

Analysts have been pushing Apple to chase after the growing lower end of the market to pick up price-conscious first-time smartphone buyers — a driving force behind the introduction of the iPhone 5c.

But just as pressing, Gillis said, is the company’s need to “introduce new products to its customer base.”

Apple is widely expected to jump into the wearable devices market with a watch or similar item within the next two years; there is also regular speculation that the firm will launch a television or TV accessory.

Apple will need a major new product if it wants to revive its stock price, said Pacific Crest Securities analyst Andy Hargreaves.

Apple’s recent deal with China’s largest carrier, China Mobile, is likely to boost sales for the iPhone and iPad in that market, Hargreaves said, but “a massively profitable new product is necessary to renew growth and drive upside to our estimates.”

Cook has hinted that Apple has some new products in the pipeline for 2014, but he remained characteristically tight-lipped Monday about what those might be.

He said Apple will invest effort only in the most promising products. “The challenge is always to focus on the very few that deserve all of our energy,” Cook said. “We’ve always done that and we’re continuing to do that.”

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Hayley Tsukayama covers consumer technology for The Washington Post.
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