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October 26, 2012

Apple Misses Analyst Expectations for Fiscal Q4 2012

By Tony Rizzo, TMCnet Senior Editor

The numbers Apple (News - Alert) has reported for its fiscal Q4 2012 are interesting to say the least. Fiscal Q4 2012 revenue was reported at $36 billion or about $200 million more than consensus analyst estimates of $35.8 billion. Unfortunately, the number that really matters - net income - came in at $8.2 billion. That amounts to $8.67 a share, which unfortunately is $0.08 below consensus analyst estimates of $8.75.

The resulting disappointment in the financial community resulted in the inevitable fatalistic rush to dump Apple stock that caused trading in Apple to temporarily be halted in after-hours trading. Trading resumed as we began writing at almost 5 p.m. ET, just prior to Apple's earnings call itself. The stock had closed at $609.54. Immediately following resumption of trading, the stock consequently continued to drop, hovering around $602 at the start of the earnings call at 5 p.m., although it had bounced up slightly to $604.10 at 5:45 pm.

The reported results compare to revenue of $28.3 billion and net profit of $6.6 billion, or $7.05 per diluted share, year over year, and gross margin was 40.0 percent compared to 40.3 percent in the year-ago quarter. International sales, per Apple, accounted for 60 percent of the quarter’s revenue.

Apple sold 26.9 million iPhones in fiscal Q4, representing 58 percent unit growth over the year-ago quarter. Apple sold 14.0 million iPads during the quarter, a 26 percent unit increase over the year-ago quarter. The company sold 4.9 million Macs during the quarter, a one percent unit increase over the year-ago quarter. Apple sold 5.3 million iPods, a 19 percent unit decline from the year-ago quarter, but of course the iPod drop needs to be considered within the context of the release of the new iPods in early September - which had no impact whatsoever on the fiscal Q4 numbers.

Apple’s board of directors did declare a cash dividend of $2.65 per share.

For the entire fiscal year 2012, Apple generated over $41 billion in net income and over $50 billion in operating cash flow. Peter Oppenheimer, Apple’s CFO, provided Q1 fiscal 2013 guidance and indicated that the company expects to deliver revenue of about $52 billion and earnings per share of about $11.75. Gross margins are expected to decline by 4 percent, a substantial concern for financial analysts.

An interesting aside: Apple CEO Tim Cook, when asked about Microsoft's (News - Alert) Surface tablet, said that though he hadn't tested the Surface hands-on, he had mostly heard that the Surface is confused and compromised. An interesting perspective certainly from a completely impartial voice!

In response to another analyst, Cook made it clear that Apple has not delivered a seven-inch tablet, making it clear that as far as Apple is concerned there is a huge difference between "compromised" seven-inch tablets and Apple's substantial 7.9 inch iPad mini.

There isn't much more to comment on at this point relative to Apple's fiscal Q4 2012. Considering the overall timing of Apple's various product releases in the latter half of its fiscal 2012, it was inevitable that the long term expectations for an iPhone (News - Alert) 5, coupled with the drop in prices of the iPhone 4S, would keep both revenue and net income down - although as we noted earlier revenue ultimately beat expectations.

The critical numbers for Apple are going to come in fiscal Q1 2013, the key holiday buying quarter. Apple is no doubt providing guidance that is conservative - we can absolutely expect that fiscal Q1 2013 number to come in likely much higher than the estimates provided by Oppenheimer. At the end of the call, Cook and Oppenheimer looked to have smoothed over the analysts on the call and the stock itself. And at the close of the call at 6 p.m., stocks had recovered to $609.70, just ahead of the market close price of $609.54.

It's the next quarter that will mark true success or failure for Apple relative to its new lineup of products. When the next earnings call comes around, those numbers will be the make or break numbers for Apple. Today's call was merely an interesting stop along the way.

Edited by Jamie Epstein
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