Tech titan Apple reported a 24% increase in quarterly profit Thursday, but that figure failed to meet the sky-high expectations of Wall Street analysts. Sales of the company’s iPad tablet device fell short of analyst forecasts, as many consumers held off buying in anticipation of the new iPad Mini, which was released earlier this week. But now that the product has arrived to the market, along with the iPhone 5, which was introduced on Sept. 21, the holiday quarter is shaping up to be a monster for Apple.
Apple said it expects to generate revenue of $52 billion over the holidays, a staggering figure that would set a record for the largest quarterly sales haul ever by a tech company, according to CNNMoney. Still, on an earnings-per-share basis, Apple’s forecast came in below analyst expectations. Investors were largely unfazed by the profit miss, however, and Apple’s shares only dipped about 1% in after-hours trading.
Apple’s profit for the last quarter was $8.2 billion, a 24% increase over the same period last year, when the company reported net income of $6.6 billion. Overall revenue increased 27% from last year to $36 billion, slightly topping analyst expectations of $35.8 billion. For the entire fiscal year, Apple said revenue was $156.5 billion, an immense figure that is greater than Google, Microsoft, and Facebook sales combined.
“We’re very proud to end a fantastic fiscal year with record September quarter results,” said Tim Cook, Apple’s CEO. “We’re entering this holiday season with the best iPhone, iPad, Mac, and iPod products ever, and we remain very confident in our new product pipeline.” Setting aside Wall Street expectations, it’s clear that consumers’ love affair with Apple products has not diminished. The company sold 26.9 million iPhones and 14 million iPads.
As usual, Apple suffers from a unique problem: Its products are so popular that the company literally cannot produce enough of them to satisfy consumer demand. “We’re in a significant state of backlog right now,” Cook said of the iPhone, adding that he can’t project “whether supply and demand will balance in the current quarter.” Needless to say, this is not the worst problem for a company to have, but it is a perennial issue for Apple, in part because of Cook’s very tight supply chain and inventory management philosophy.
As expected, the rise of Asia’s middle class is translating into explosive growth for Apple in that region. The company’s Chinese sales now account for 15% of Apple’s overall revenue. For the entire fiscal year, revenue from China was $23.8 billion, an increase of $10 billion, or 78%, over the previous year. In Japan, Apple’s sales were up a whopping 113% from the previous year. Cook said that he expects the iPhone 5 to become available in China in December, which will further boost the company’s holiday quarter. It’s no wonder Cook called China “an extremely exciting market for us.”
Cook had some choice words for Microsoft and its Surface tablet, which the Redmond, Wash.-tech giant hopes will compete with the iPad. Although Cook said he hadn’t yet “played” with the device, it’s clear he’s not a fan. He called the Surface a “confused, compromised product” and compared it to a car that drives, flies and floats — but does none of these things very well.
This is a classic Apple talking point (and it came on the same day Microsoft launched its highly anticipated new operating system, Windows 8). In its design philosophy, Apple emphasizes building products that can do a few things very, very well, as opposed to other companies products, which are often designed to do too many things at once. In the past, Apple has referred to this as the “fridge-toaster” dynamic, in which companies try to cram multiple, divergent features into a device, detracting from its elegance and utility. In Apple’s world, a phone is a phone, a tablet is a tablet, and a desktop PC is a desktop PC.
Like every major tech company, Apple must contend with the global macroeconomic slowdown, particularly in Europe, but also in North America. In recent weeks, the U.S. dollar has strengthened, putting further pressure on big companies like Apple, Google, Intel, and IBM, which do about half of their business overseas. When the dollar appreciates, it makes U.S. exports more expensive overseas, causing a local price differential that can cost these companies hundreds of millions of dollars in sales in a given quarter.
Bottom line: Apple’s fundamentals look very good. This company has the best products in several categories, from the iPhone to the iPad to the iMac. It is delivering double-digit earnings growth at scale, with a huge holiday quarter expected. Apple is also sitting on over $120 billion in cash, some of which will be returned to shareholders though a dividend later this fall. It’s not surprising that Tim Cook, an operational wizard, has maneuvered Apple into a strong position ahead of the holiday shopping season, with $52 billion in sales expected. This is going to be the largest quarter in Apple history.