Apple for the day

Brian Chen has an article in The New York Times about Apple's profitability:

Apple now has more product offerings. And Apple now sells its products in more places. But for the third consecutive quarter, Apple does not have more profit.
Apple is generating less revenue from devices sold than it has in the past. Below, the change in the last quarter from the same period a year ago.

Units sold             RevenueiPhones  26%      17%
iPads      0%       -13%
Macs      -7%      -15% 

Apple has reported a profit of $7.5 billion for the fourth fiscal quarter, on revenue of $37.5 billion, down from earnings of $8.2 billion on $36 billion in revenue during the same period last year.
Apple’s iPhone sales were up sharply, thanks in part to the introduction of new iPhone models last month. But iPad sales were flat, and Macintosh sales slowed down; both of those devices brought in less revenue than a year ago.
“Those are really good numbers obviously,” said Tero Kuittinen, an independent technology analyst for Alekstra, a mobile diagnostics firm, referring to overall revenue and profit. “But I think the tablet problem is undermining them.”
Apple’s profit remains the envy of the tech industry and most other industries. But the slowdown of its growth has become a concern for some investors. Apple is counting on new products to improve its bottom line, especially during the coming holiday season, the most lucrative time of year for hardware makers. In September, the company released two new iPhones, and last week, it introduced new Mac laptops and two new iPads, the company’s popular tablets.
On the earnings call, Timothy D. Cook, Apple’s chief executive, said: “It’s going to be an iPad Christmas.”
And there is little doubt that iPads will sell in huge quantities in the next quarter. But there is doubt about which iPads will sell best: the new iPad Air, which is the larger and more expensive model, or the iPad Mini. The Mini has become a popular choice among consumers since it was first released last year. But the device has a smaller profit margin than its more expensive cousins, and its high sales may be part of the reason behind a thirteen percent decline in overall iPad revenue.
That decline in revenue, combined with flat sales, is particularly troubling at a time when the tablet market is still young and growing quickly. Apple sold 14.1 million iPads over the quarter, up barely from 14 million in the quarter a year ago. That is far from the pace of the market: manufacturers are expected to ship 184.4 million tablets in 2013, up from 120 million last year, according to Gartner.
“In a strongly growing market, clearly that’s a problem,” said Kuittinen. He added that Apple had clearly sacrificed market share to competitors of cheaper tablets like Amazon and Google in order to protect its profit margins. “Investors have bad memories from companies who decided they’re going to give up market share in the consumer electronics space,” he said, referring to Apple’s decision, nearly a generation ago, to focus on profits with its Macintosh computers. The company came roaring back in the last decade after almost disappearing.
In the last quarter, Mac sales were slightly down. The company said it sold 4.6 million Macs, compared with 4.9 million in the same quarter last year.
iPhones sales were a different matter, as the devices flew off the shelves. The company said it sold 33.8 million iPhones, up from 26.9 million iPhones in the same quarter last year. Wall Street analysts had expected that Apple would sell 29 million to 38 million new iPhones.
This year, for the first time, Apple released two new iPhone models at once: the lower-cost, plastic iPhone 5C, and the high-end iPhone 5S. In the past, it has released just one at time. The company also for the first time released new iPhones at the same time in many places around the world. But, because the two phones were released toward the end of last quarter, it is too early to tell whether the second new iPhone will translate into significantly higher sales. The uptick in iPhone sales over the last quarter most likely came from early adopters quickly snatching up the iPhone 5S.
On the sidelines of Apple’s recent product releases, some investors have clamored for Apple to unload some of its growing cash pile back to shareholders. Carl C. Icahn, the activist investor, has pushed Apple to begin a buyback of $150 billion in stock.
On the earnings call, Cook gave no indication that Apple would heed Icahn’s suggestion. In the last five quarters, it has returned $36 billion to shareholders in dividends, he said.
Cook also said that Apple had made fifteen acquisitions, which he said illustrated that the company was investing its cash in areas that could help its growth. He also suggested that the company was working on new product categories. The new products might include a long-rumored smartwatch or Apple television.
The company beat the expectations of Wall Street analysts. They had expected earnings of $7.93 a share and revenue of $36.84 billion, according to a survey of analysts by Thomson Reuters. Shares in the company were essentially flat in after-hours trading.
While hardware takes the front seat of Apple’s business, the company also made big moves with software recently. Last week, it said it would offer its Mac operating system free along with a suite of productivity apps for Macs, iPads, and iPhones.
The free software offerings could be a long-term play for Apple to assault Microsoft, said Laurence Isaac Balter, chief market strategist at Oracle Investment Research, which has clients that own Apple shares. “The free access to the software platform drives a stake in the heart of Microsoft,” Balter said. “It’s now a game of premium platform with free software, which puts Microsoft at a huge disadvantage.”

Rico says he has no more Apple shares, alas, but somebody's making money, and anything that 'drives a stake in the heart of Microsoft' is a good thing. (Rico's apologies to all his old friends that work in Redmond...)