More Apple for the day

The New York Times has an article by Brian Chen about Apple's profitability;

Apple’s remarkable growth streak, now more than a decade old, is starting to fade a little.
Apple reported that its revenue for the last quarter climbed five percent, to $45.6 billion, from $43.6 billion in the same period the year earlier. The company’s earnings were up about seven percent, to $10.2 billion, from $9.5 billion in the same quarter a year ago.
Although the results beat expectations, the company’s rate of profit and revenue growth has slowed considerably in recent quarters. The slowdown has put pressure on Timothy D. Cook, the company’s chief executive, to release products in new categories; perhaps with a so-called smart watch or even an Apple television.
Apple resorted to other means to at least temporarily please investors concerned about the pace of growth. The company said it would buy thirty billion dollars of its stock in addition to the sixty billion dollars it announced last year. It also raised its quarterly dividend by eight percent and said it would split its stock. In after-hours trading, Apple’s shares were up nearly eight percent.
In a call with analysts, Cook said the increased buyback was “a signal of the board and management team’s strong confidence in the future of Apple.”
Carl C. Icahn, the activist investor who has repeatedly clamored for Apple to increase its buyback program, expressed his satisfaction with the change on Twitter: “Believe we’ll also be happy when we see new products,” he wrote.
The company sold 43.7 million iPhones, up from 37.4 million in the same period last year. But sales of its iPads, at 16.35 million, were slightly down, from 19.5 million last year, despite a major redesign for one of the iPads introduced in the fall.
It was almost certain that Apple’s stratospheric rise, largely on the back of the iPhone, would plateau. It’s the law of large numbers. “If Apple grew the next five years like it did in the previous five years, it would be approaching the GDP of Australia,” said Toni Sacconaghi, an analyst at Sanford C. Bernstein. Still, investors have come to expect big jumps from Apple. For years, Apple has blazed new trails for the tech industry with its iPhones and iPads. “Psychologically, it’s more the issue that here is this incredibly high-flying company two years ago growing at fifty percent or more,” Sacconaghi said.
The big question that hovers over the company is whether it can regain that momentum.
Apple’s iPad sales are slowing down much faster than many expected. Apple sold about three million fewer iPads over the last quarter than it did in the same period last year. Apple said the result was mostly related to supply changes.
But Apple’s competitors, like Amazon and Samsung, offer much cheaper tablets, and that may also be stifling the iPad’s growth. Many cheap tablets that cost half as much as an iPad, like Amazon’s Kindle Fire, have improved in quality, said Tero Kuittinen, managing director at Frank N. Magid Associates, a strategic consulting firm. “Many people would argue that the quality of the two-hundred-dollar tablet has improved radically,” Kuittinen said. “At the same time, Apple decided to pick and hold the line on premium pricing and clearly it’s undermining unit growth.”
Cook said on the earnings call that he was optimistic about the iPad’s growth. He said that market share was not an accurate depiction of the device’s success. Over ninety percent of tablets used by enterprise companies, and ninety-five percent of the tablets used by schools, are iPads, and customer satisfaction with iPads remains high, he said.
“What it means to me is that the trend over time, over the arc of time, that things look very, very good, that iPad has a great future,” Cook said.
Apple had strong growth from iPhone sales, selling about six million more over the quarter than it did in the same period last year. Apple said its recent partnership with China Mobile, the biggest phone carrier in the world, helped sales.
Sales of the iPhone pushed the company above Wall Street expectations. Analysts had expected revenue of $43.5 billion and profit of $10.18 billion, according to a survey by Thomson Reuters.
Still, smartphone sales are slowing down industrywide, notably in China, which may pose a potential problem for Apple. Smartphone sales there are expected to grow only twenty percent this year, compared with growth of sixty percent in 2013, according to the research firm IDC. Many people with stable incomes have already bought smartphones there.
Cook seemed confident that the iPhone would continue to find growth. He said that the older iPhone 4S was helping attract first-time iPhone buyers in emerging markets like China and Vietnam. Apple’s iPhone sales were also up in developed markets like the United States, France, and Germany, he said.
Apple also sold over four million Macs over the quarter, roughly flat compared with last year. The spring quarter should be tougher for Apple. The company is widely expected to introduce new iPhones with larger screens this fall, so many consumers may be holding out on buying iPhones until those models come out. “That’s when the pressure is going to be the most intense,” Kuittinen said.

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