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Apple shares plunge after disappointing earnings report

Even though the tech giant earned $8.8 billion in its third quarter, it fell short of Wall Street expectations. Its shares fell nearly 6% in after-hours trading.

July 25, 2012|By Andrea Chang, Los Angeles Times
  • Apple reported a third-quarter profit of $8.8 billion, or $9.32 per share, up 21% from $7.3 billion, or $7.79, a year earlier. Above, an Apple employee, left, gives an iPad tutorial to customers at an Apple store in Palo Alto.
Apple reported a third-quarter profit of $8.8 billion, or $9.32 per share,… (Paul Sakuma, Associated…)

Apple Inc. earned $8.8 billion last quarter, but that still wasn't enough to keep its shares from plunging in after-hours trading as the technology company disappointed investors who expected more people to buy iPhones.

Many consumers appear to be waiting for the next upgrade of the popular smartphone, and that caused sales to drag for the technology giant. Rumors that a new iPhone with a larger screen may come out in the fall have been rampant for months, with some influential consumer blogs even recommending that customers hold off buying until the next generation.

"Our weekly iPhone sales continue to be impacted by rumors and speculation regarding new products," Peter Oppenheimer, Apple's chief financial officer, said during a teleconference call with analysts Tuesday.

Apple's disappointing third-quarter results were a rare miss for a company known for reporting blowout earnings, causing shares to plummet nearly 6% to $567 at one point in after-hours trading. It was only the second time in more than 30 quarters that Apple had missed analysts' earnings-per-share estimates, said Toni Sacconaghi of Sanford C. Bernstein & Co.

Analysts surveyed by Thomson Reuters had estimated that Apple would post earnings per share of $10.36 on revenue of $37.2 billion.

Instead, the Cupertino, Calif., company reported profit of $8.8 billion, or $9.32 per share, up 21% from $7.3 billion, or $7.79, a year earlier. Revenue totaled $35 billion, a 23% year-over-year increase from $28.6 billion. Apple's guidance for the current quarter also came in below what analysts had forecast.

Besides muted iPhone sales, the company also saw a slowdown in Europe, with business in France, Greece and Italy "particularly poor," Chief Executive Tim Cook said. But he said the company didn't see evidence that the economy hurt sales in the U.S. or China.

Despite the lower-than-expected results, analysts noted that Apple was still outperforming the rest of the industry.

"We're still very optimistic that Apple is setting up for a strong holiday season, which could be related to a new iPhone or new iPad," said James D. Ragan, an analyst at Crowell, Weedon & Co. "Maybe there's a pause in the numbers now, but stronger growth will resume later this year. The stock weakness here, below $600 — we view it as a buying opportunity."

The company sold 26 million iPhones in the quarter, up 28% from a year earlier but down sharply from 35.1 million in the previous quarter. Analysts had expected iPhone sales of 29 million.

Apple iPad sales continued to soar, rising to 17 million, up 84% from a year earlier and up 44% from the previous quarter. Sales of iPods fell 10% to 6.8 million. Mac sales totaled 4 million, a 2% rise.

Apple executives were careful not to divulge any details about new products in its pipeline. But the company did say OS X Mountain Lion would be available Wednesday and announced that Apple's board had declared a cash dividend of $2.65 per share of common stock, payable Aug. 16.

For the current quarter, Apple said it expected revenue of about $34 billion and earnings per share of about $7.65. However, the company is notorious for providing extremely conservative guidance numbers — a move that some on Wall Street say Apple does on purpose, hoping to dazzle investors with huge quarters that would send the company's shares skyrocketing.

Separately, the company is gearing up for a massive patent infringement trial against rival Samsung Electronics Co. set to begin Monday in federal court in San Jose.

Apple said in new court filings Tuesday that it was seeking more than $2.5 billion in damages from Samsung. The company said Samsung's alleged design infringements involving smartphones and tablets "have enabled Samsung to overtake Apple as the largest manufacturer of smartphones in the world."

"Samsung has reaped billions of dollars in profits and caused Apple to lose hundreds of millions of dollars through its violation of Apple's intellectual property," Apple said.

Samsung says Apple is trying to stifle legitimate competition and limit consumer choice.

Apple reported its earnings after the markets closed. During regular trading, shares fell $2.91, or less than 1%, to $600.92.

andrea.chang@latimes.com

Times staff writers Laura Hautala and Salvador Rodriguez contributed to this report.

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