Apple reports rare miss in Q3 results, Q4 forecast far surpass Wall Street

Reuters

Apple Inc (Cupertino, Calif., U.S.A.) reported a rare miss in quarterly results after sales of its flagship iPhone fell well short of Wall Street expectations, hammering its shares.  Shares of the world's most valuable technology corporation dived more than 5% to below $400 after it said it sold 17.07 million iPhones -- well short of the roughly 20 million expected by analysts.

Apple's CFO said iPhone sales came in ahead of internal expectations but were hurt in September by customers waiting for a new version.

The September quarterly report was Apple's first under new Chief Executive Tim Cook, who took over in August after co-founder Steve Jobs resigned.

Cook takes over during a critical juncture for the company, which is battling a fast-rising Google Inc in the mobile arena while fending off consumer electronics giants such as Samsung and Amazon.com Inc.

"Expectations for this company were red-hot, that is why we downgraded it," says BGC Partners analyst Colin Gillis, who lowered his rating on the shares days before. "The reality is their business is not an annuity. They have to sell their quarter's worth of revenue every 90 days."

"They had a big upgrade cycle with the iPhone, the numbers came in weak. They need to set records every time they report to keep up the momentum."

Apple said its revenue rose to $28.27 billion but that was also lower than the average analyst estimate of $29.69 billion, according to Thomson Reuters.

The company reported a net profit of $6.62 billion, or $7.05 a share. That fell shy of expectations for earnings of $7.39 per share.

"There's no question this was a transition quarter ahead of the 4S," says WP Stewart portfolio manager Michael Walker. "With the early pace of iPhone 4S sales, my guess is that disappointment is relatively short-lived.  I'm not going to call Q3 a throwaway quarter for iPhones, but it was definitely transition.”

The company moved 4 million iPhone 4S units -- more than double its predecessor -- in its first three days, despite lukewarm reviews.

A large spike in sales of Mac computers during the September quarter failed to lift earnings. Apple sold 4.89 million Macs, up 27% from a year ago. And it moved 11.12 million iPads.

Gross margin came to 40.3% -- a tad higher than Wall Street's forecast of 39.74%. International sales accounted for 63% of the quarter's revenue.

Some analysts had feared the lack of a new iPhone in more than 15 months would hurt the September quarter, while arguing the holiday season would turn out strong after the introduction of the fifth version of its smartphone.

"We expected iPhone sales to decline in the September quarter from the June quarter as a result of the announcements we made at WWDC in June, where we said we would launch iOS 5 and iCloud in fall," says Peter Oppenheimer, Chief Financial Officer.  "That basically created the rumor of the day across the September quarter, especially at the end."

Apple said it expected December quarter earnings of $9.30 a share on revenue of about $37 billion.

The forecast for the December quarter far surpassed Wall Street's projection for just above $9.00 -- a rare instance of its outlook exceeding expectations. Apple typically guides so conservatively that investors disregard its forecasts.  But that failed to discourage the after-hours sell-off. Before the numbers, Apple's shares had climbed to as high as $425 in extended trade.

"What is interesting is the guidance is less conservative than usual for their next quarter. It's a timing issue, where it looks like the business that people thought would be in the September quarter is occurring in the December quarter," says Sterne Agee analyst Shaw Wu.  "One of the things obviously is the iPhone 4S just started shipping a few days ago."

(Reporting by Poornima Gupta and Edwin Chan; Editing by Gary Hill)

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