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Apple Delivers a Big Earnings Miss; Outlook Disappoints

CNBC.com With Wires
Tuesday, 24 Jul 2012 | 6:41 PM ET

Apple, known for beating on earnings, delivered a huge earnings miss and its outlook for the current quarter disappointed.

Apple
Kimihiro Hoshino | AFP | Getty Images
Apple

After the earnings announcement, the company's shares slid 5 percent in trading after the closing bell. (Click here to get the latest quotes for Apple.)

“I think people were prepared for a bit of a top-line miss, but this is a bit extreme,” said Alex Gauna, an analyst at JMP Securities, on CNBC’s “Closing Bell.”

Gauna added, “Obviously, gross margin wasn’t enough to save the stock in this case.”

The company posted fiscal third-quarter earnings excluding items of $9.32per share, upfrom $7.79 a share in the year-earlier period.

Net income was $8.8 billion, or $9.32 per share. That was up 21 percent from $7.3 billion, or $7.79 per share, a year ago.

Revenue rose 23 percent to $35 billion from $28.57 billion a year ago.

Analysts had expected the company to report earnings excluding items of $10.37 a share on $37.22 billion in revenue, according to a consensus estimate from Thomson Reuters.

China was partly to blame for the growth slowdown, CEO Tim Cook said on the conference call. While Apple didn't see problems with the overall Chinese economy, weekly iPhone sales were impacted by rumors that new products were coming. Economic weakness in Europe did hamper iPhone growth there, however.

Apple sold 26 million iPhones in the quarter, at the low end of expectations. It sold 17 million iPads, beating forecasts. The company reported that its cash pile rose to $117 billion, an increase of $7 billion during the quarter.

Apple's fourth-quarter guidance also disappointed: It forecast $7.65 a share for earnings on revenue of $34 billion vs. analysts’ expectations of $10.22 a share earnings on revenue of $38 billion.

On the conference call, Apple guided to a gross margin of 38.5 percent for the fiscal fourth quarter, the lowest level since the recession, as the fall transition and back-to-school promotions bite into profitability. The company posted a gross margin of 42.8 percent in the third quarter compared to 41.7 percent in the year-ago period.

The stock has slipped from a $644 all-time high hit in early April as it's been hurt by a broader-market sell-off and concerns that worldwide economic weakness will hurt consumer demand. In intraday trading Tuesday, the stock fell below $600.

Inside Apple's Earnings Miss
Insight on Apple's latest earnings miss as well as the company's disappointing outlook for the current quarter, with David Garrity, GVA Research; Alex Gauna, JMP Securities; and CNBC's Jon Fortt.

The company blew past analysts' forecasts during the previous quarter, but Wall Street's expectations for an earnings beat this time were tempered as consumers held off on purchases ahead of the upcoming new iPhone release that is expected around October.

On Tuesday, Apple claimedthat it is entitled to $2.525 billion of damages in its high-stakes battle against Samsung Electronics over patents for technology used in smartphones and tablets, such as the iPhone and iPad.

The estimate was revealed in a court filing early Tuesday, six days before the world's largest consumer electronics companies are scheduled on July 30 to begin a jury trial before U.S. District Judge Lucy Koh in San Jose, California.

Apple accused Samsung of infringing its patents by making its popular Galaxy phone and computer tablets "work and look" like Apple products, enabling the South Korean company to overtake it as the world's largest maker of smartphones.

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  • Matt Hunter is the senior technology editor at CNBC.com.

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