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Apple's quarterly profit tops forecasts; iPhone sales set record

Apple's fiscal 3rd-quarter earnings please analysts, who still await another blockbuster hit from the firm. 'Amazing new products' will be introduced 'in the fall and across 2014,' CEO Tim Cook says.

July 23, 2013|By Andrea Chang
  • Apple has been in a bit of a slump lately because of a prolonged product drought and growing impatience among investors and consumers waiting for the company to come out with another blockbuster hit. Above, shoppers look at iPads at an Apple store in Hong Kong.
Apple has been in a bit of a slump lately because of a prolonged product drought… (David Paul Morris, Bloomberg )

Apple Inc. topped Wall Street expectations by posting better-than-anticipated profit and setting a third-quarter record for number of iPhones sold.

It was a welcome break for Apple, which has been in a bit of a slump lately because of a prolonged product drought and growing impatience among investors and consumers waiting for the company to come out with another blockbuster hit.

Chief Executive Tim Cook played into that anticipation Tuesday, noting that the company had some "amazing new products" in the works but, as usual, remaining tight-lipped about what they were. He said the Cupertino, Calif., company planned to introduce the products — which analysts have guessed could be a lower-priced iPhone, iWatch or television set — "in the fall and across 2014."

The company's fiscal third-quarter earnings, released after the stock market's regular session ended, sent shares up as much as 5% in after-hours trading. During regular trading, shares fell 1.7% to $418.99; the stock is down 40% from its high in September.

Attention now turns to the fall, when Apple usually holds a big media event to announce the latest version of its flagship iPhone.

In addition to an iPhone refresh, many are expecting Apple to debut a more affordable smartphone that would be made with a plastic exterior and cheaper components. Such a device would help Apple appeal to first-time smartphone buyers and consumers in emerging markets, who often pass up Apple's products for less expensive devices made by rivals including Samsung Electronics Co.

"Effectively what a lower-price iPhone could do is make the device — albeit likely with lower features and functionality — available to more and more people," said Toni Sacconaghi, an analyst at Bernstein Research. "Bringing affordability to smartphones in emerging markets is really where market growth is happening."

Apple has seen strong sales of its older-generation iPhone 4 even after newer versions of the iPhone were released, indicating customers are receptive to the idea of a more affordable phone, Cook said in a call with analysts Tuesday.

"We want to attract as many of these buyers as we can," he said. "It's a great way for a buyer to get into the iOS ecosystem."

And although some analysts are skeptical, others are confident that Apple will also launch a TV set, which company co-founder Steve Jobs hinted at before he died in 2011.

"I would be shocked if we don't see an iWatch and Apple TV by the end of calendar '14," said Brian White, an analyst at Topeka Capital Markets. "It's definitely going to be an actual TV; it's just the timing."

For the three months ended June 29 — typically an uneventful quarter for Apple — the tech company posted profit of $6.9 billion, or $7.47 a share, on revenue of $35.3 billion. Profit declined 22% from the $8.82 billion in the same quarter a year earlier, while year-over-year revenue was up slightly from $35 billion.

The company sold 31.2 million iPhones, which account for more than half of its revenue, compared with 26 million in the year-earlier quarter; that's the most iPhones the company has sold during its third quarter. It sold 14.6 million iPads, down from 17 million, and 3.8 million Macs, down from 4 million.

Analysts had expected fiscal third-quarter earnings of $7.32 a share on revenue of $35.02 billion, according to consensus estimates compiled by Thomson Reuters.

For the current quarter that ends in September, Apple expects revenue of $34 billion to $37 billion and gross profit margin of 36% to 37%. Based on those figures, analysts are predicting that Apple will reveal one or more new products by the end of the quarter, with more to come through the end of the year and into 2014.

During the earnings call, Cook reiterated that the company wasn't focused on meeting financial goals.

"We're here to make great products and we think that if we focus on that and do that really, really well that the financial metrics will also come," he said. "If you look at how the company has executed over many years, it would suggest that that's possible."

That sentiment was echoed by White, who predicted that Apple's stock would rebound and that the company's "best days are still ahead."

"I strongly believe that, because mobile Internet is still in its infancy and there's no company in the mobile Internet world that comes out with better, cooler products than Apple," he said. "We call fiscal '13 a year to forget and fiscal '14 a year of innovation."

andrea.chang@latimes.com

Twitter: @byandreachang

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