Competition from Samsung, others deflates expectations at Apple

Apple released its quarterly earnings report Tuesday as many investors and analysts turn increasingly skeptical about the company’s prospects. Profits at Apple declined for the first time in a decade:

The company’s net income fell 18 percent, to $9.5 billion, in the first quarter, compared with the corresponding period last year. That beat analysts expectations, and revenue increased 11 percent, to $43.6 billion. But the combination of slower revenue growth and tighter profit margins was enough to unnerve some investors.

Apple gained nearly 2 percent to close at $406.13 Tuesday before reporting its quarterly results. In after-hours trading, the stock initially rose but cooled and was trading in slightly negative territory late Tuesday.

Last week, Apple’s shares were briefly trading below $400, a new low, and they opened below $400 again Wednesday morning. They had been worth $705 in September. Shareholders are worried about whether the company can compete with manufacturers that make less expensive phones and whether chief executive officer Tim Cook will prove as effective as the company’s former head, Steve Jobs. Perhaps in the hope of mollifying shareholders, Apple also said Tuesday it would repurchase more shares and increase its quarterly dividend, according to Bloomberg.

Apple’s earnings fell short of projections last quarter, at which point Cook said the company would not cheapen its brand by selling inexpensive products:

“We aren’t interested in revenue for revenue’s sake,” Cook said. “We could put the Apple brand on a lot of things and sell a lot more stuff.”. . .

Samsung, in particular, has been aggressively going after the demanding high-end market that’s been Apple’s bread and butter. But the Korean tech giant is also able to move into a lower-end market overseas, somewhere Apple still cannot follow.

Apple’s performance has also affected its suppliers, Bloomberg reports:

Cirrus Logic Inc., a maker of audio chips that gets 91 percent of its sales from Apple, this week reported an inventory glut that suggested slowing iPhone sales, and forecast fiscal first-quarter revenue below analysts’ estimates. Hon Hai Precision Industry Co., Apple’s top supplier, this month posted its biggest revenue decline in at least 13 years, indicating slower sales of smartphones, tablets and computers.

Apple’s breakneck growth to $156.5 billion in revenue last year, from $24.6 billion in 2007 when the iPhone debuted, supports an ecosystem of at least 247 suppliers across the globe. They relied on Apple to deliver $30.1 billion in orders in the latest reported quarter, according to supply-chain data compiled by Bloomberg. As a result, many are now vulnerable after building up inventory in anticipation of continued growth. . . (Read the full article here.)

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Max Ehrenfreund is a blogger on the Financial desk and writes for Know More and Wonkblog.
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