All Eyes on Fall: Apple’s Third Quarter Was Just Filler

(Photo by Mario Tama/Getty Images)

(Photo by Mario Tama/Getty Images)

It looks like the army of analysts and investors who follow Apple (NASDAQ:AAPL) have wrapped their collective mind around the company. Shares of the consumer tech giant barely budged on Tuesday evening following the fiscal third-quarter earnings report because, well, Apple did about as well as expected.

Revenue, which was guided in a range between $36 billion and $38 billion, clocked in at $37.4 billion, up about 6 percent on the year but still shy of the $38.81 billion consensus estimate from Estimize. Net profit of $7.7 billion, or $1.28 per share, was up about 20 percent on the year and was about inline with the consensus Estimize estimate of $1.29 per share. Gross margin expanded from 36.9 percent to 39.4 percent, beating guidance in a range between 37 and 38 percent.

So the results were generally good, but maybe not great — at least, not for enterprising Apple bears. Shares, which closed the day up 0.83 percent at $94.72, fell more than half a percent in post-market trading as the market identified some softness in Apple’s fourth-quarter outlook. Here’s the guidance:

  • revenue between $37 billion and $40 billion
  • gross margin between 37 percent and 38 percent
  • operating expenses between $4.75 billion and $4.85 billion
  • other income/(expense) of $250 million
  • tax rate of 26.1 percent

The first thing to notice is that the revenue outlook is weaker than the $41.36 Wall Street analysts are looking for and much weaker than the $43 billion Estimize analysts are looking for. Although Apple generally issues guidance lightly, it looks like the market can’t help but take a step back and question the outlook. This may be because the big catalyst speculated to be on the horizon is a new product launch, which should drive strong revenue growth. Soft guidance may indicate a later launch that some analysts expect.

In the earnings release, Apple CEO Tim Cook highlighted “strong sales of iPhone and Mac” as fuel for revenue, which touched a record high for the June quarter despite undershooting expectations. iPhone sales volume increased 13 percent on the year to to 35.2 million units, while iPhone revenue increased 9 percent to $19.8 billion. Mac sales volume increased 18 percent on the year to 4.4 million units, and mac revenue increased 13 percent on the year to $5.5 billion.

On the downside, iPad sales volume decreased 9 percent on the year to 13.3 million units while iPad revenue was down 8 percent on the year to $5.9 billion. iPod sales continued to plummet, with volume down 36 percent on the year to 2.9 million units and revenue down 40 percent on the year to $442 million. iTunes, software, and services revenue increased 12 percent on the year to $4.5 billion and accessories revenue also increased 12 percent to $1.3 billion.

Geographically, Apple’s growth story is still centered in the Greater China area. On the year, revenue from the region was up 28 percent to $5.9 billion, accounting for almost 16 percent of total revenue. Revenue from the Americas was up just 1 percent on the year to $14.6 billion, accounting for about 39 percent of total revenue. All told, international sales accounted for 49 percent of Apple’s fiscal third-quarter revenue.

With the third-quarter report creating only small waves, the eyes of the market will probably shift quickly to the coming fall quarter. Consensus is that Apple will finally move some products out of the pipe and into the market, satisfying everyone’s curiosity and maybe driving revenue in the process. Piper Jaffray analyst Gene Munster told MarketWatch that Apple is “still building up expectations.”

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