GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Poor Apple Results - Can They Keep Up?

July 31, 2012 | About:
Muhammad Bazil

Muhammad Bazil

3 followers
What happened to the nearly trillion dollar company that was set to take apart the industry? On Tuesday July 24 the company reported poor earnings. After the poor earnings call the company’s shares plummeted more than 5 percent. Apple simply failed to manage investor expectations and failed to deliver a significant blow in the eyes of Wall Street insiders.

Here’s what they got wrong: Net income came out at $8.82 billion, up from $7.31 billion or $7.79 a share, over the previous year’s record. Revenue was also up at $35.02 billion compared with $28.57 billion during the same time last year.

I should have mentioned that Apple’s failing is what some company’s may envy. But the root of the cause actually stemmed from not selling as many phones as expected. According to the iPhone maker, the company only made a 28 percent increase in iPhone sales from the previous year, a substantial screw up for analysts expecting the company to sell more. Expectations included selling 29 million phones, which was 3 million more than the company’s lower 26 million.

It was a bad day on Wall Street no doubt; strange for folks with normal ears, however. What Apple failed to do according to investors was simply sell the current iPhone. With the launch of a newer iPhone consumers are starting to look skeptically at purchasing Apple’s current offering.

“We’re reading the same rumors and speculation you are about a new iPhone,” said Peter Oppenheimer, Apple’s chief financial officer during the earnings call.

The good news in my view is that unlike Research In Motion (RIMM) that failed to generate enthusiasm for a delayed phone, Apple is working at maintaining expectations for a future phone more people want.

Apple is still expected to increase smartphone market share to 31 percent this year, up from 30 percent, according to research firm eMarketer. Apple’s large rival Google (GOOG) will maintain a market share of 28 percent for its Android operating system. Google’s newest operating system Ice Cream Sandwich currently accounts for 10.9 percent of the Android market, Apple reached 61 percent adoption of its current system iOS 5, in just 15 days. I sense a bit of an enthusiasm gap.

When speaking about users enthusiasm for the latest phone, Apple CEO Tim Cook had a few things to say. “I’m glad people want the next thing,” he said. “I’m not going to put any energy into trying to get people to stop speculating.”

Apple Buying Twitter?

Last Friday was something of a surprise when the NY Times revealed Apple may be interested in making an investment in social media platform Twitter.

The news comes as social giant Facebook (FB) failed to bring investors to the table with a poor earnings report, and no developments in mobile advertising.

The move also comes along the lines of previous endeavors, including Apple’s early inclusion of Twitter as part of iOS 5, something Facebook will not receive until this fall.

Microsoft (MSFT) currently has a stake in Facebook, which accounted for a 1.5 percent ownership of the $15 billion company. What the move ultimately led to was the relationship that coupled the search engine Bing with Facebook likes and advertising initiatives.

What Microsoft managed to do with Facebook, Apple failed to do with its social music project Ping. Originally the service was invented to work directly with Facebook, allowing users to share iTunes selections on Facebook, but the project went tense, then cold, then quickly swapped for Twitter.

The project Ping never took off, but the move allowed for a Twitter relationship to blossom. The inclusion of Twitter in iOS has according to the report generated 10 billion tweets alone.

While the report maintains that the two companies are still in negotiation, one can expect that Chief Financial Officer Ali Rowghani will play a major role. Having overseen Pixar Animation studios' finances and previously worked directly under Apple’s previous CEO Steve Jobs, there can be some expected familiarity.

Apple Purchases a Security Firm

Apple last Friday July 27 purchased a technology security firm AuthenTec for the price of $356 million. While the move is not expected to impact the company’s $117 billion cash pile, it was a larger purchase than normal for the device and computer maker.

AuthenTec makes fingerprint scanners, lock devices, and other security services. At this time there is no certainty as to what the company’s role will be relating to Apple devices like the iPhone, and iPad.

Apple has always prided itself as being safer for consumers and maintained that OS X, the Macintosh desktop operating system, was virtually virus free. As news persists of new virus threats on the desktop platform, that acquisition may be intended to help combat those threats. Apple uses a similar variant of the same desktop OS for the iPhone and iPad, and could potentially marry security measures used in all platforms.

According to Friday’s filling, if AuthenTec opts for a superior bid from a rival company, it will pay Apple $10.95 million. However, if the deal does not close because of antitrust issues, Apple will pay AuthenTec $20 million.

About the author:

Muhammad Bazil
Muhammad Bazil is a financial journalist and editor for a variety of websites, public policy organizations, and book publishers. He has written hundreds of published articles and blog posts on topics including budgeting, credit management, real estate and investing. His articles have been featured on the homepage of Yahoo!, MSN and numerous local news websites.

Rating: 3.0/5 (5 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK