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Apple May Face First Profit Drop in Decade as IPhone Slows

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發表於 2013-1-22 14:09:09 | 顯示全部樓層 |閱讀模式
By Adam Satariano - Jan 22, 2013
Apple Inc. (AAPL) Chief Executive Officer Tim Cook is feeling the heat.

Eighteen months after taking over from Steve Jobs, Cook is facing rising production costs, competition from Samsung Electronics Co. (005930) and slowing growth in smartphones, threatening profits for the world’s most valuable company.

An earnings report tomorrow may show that fiscal first- quarter net income slipped 2 percent to $12.8 billion, or $13.48 a share, according to analysts’ estimates compiled by Bloomberg. In all except one quarter since 2003, profit has jumped more than 10 percent. Analysts project sales will rise 18 percent to $54.8 billion, the slowest growth rate since 2009.

Apple’s shares have dropped almost 30 percent since September, erasing about $190 billion in market value, on concern that demand for iPhones and iPads is ebbing. Cook, 52, overhauled most of the company’s product line ahead of the holiday shopping season, and results for the period will show for the first time whether the effort paid off.

“Sentiment could not be worse,” said Peter Karazeris, an analyst at Thrivent Financial for Lutherans, which owned about 647,000 Apple shares as of September. “It does take something fundamental to turn that, and we’ll see if they can deliver.”

Apple often reports results that surpass even the most optimistic projections, and it’s possible the company will do so again tomorrow. The company has exceeded analysts’ estimates for earnings in all but three quarters since at least 2006, according to data compiled by Bloomberg.

Parts Purchases

Yet, in a sign that investors are turning more bearish on Apple, the company is trading at a 52 percent discount to the Nasdaq Composite Index on a price-to-earnings basis, a spread that has widened from a 20 percent discount in October. Apple touched a record high of $705.07 on Sept. 21.

Many analysts have reduced their estimates amid signs -- such as a drop in component purchases -- that demand may be weaker than projected for the iPhone, which accounts for more than half of Apple’s sales and profit. In the past three months, analysts’ profit prediction for Apple for fiscal 2013 has declined 7.5 percent to $46.3 billion, or $48.84 a share.

“If iPhone 5 sales really are disappointing so soon in the product’s refresh, then it seems fair to worry about likely sales volumes in the next few quarters before the iPhone is next refreshed,” Stuart Jeffrey, an analyst at Nomura Equity Research, wrote in a note when he lowered his outlook for Apple.

Samsung’s Moves

In January 2012, Apple posted record first-quarter results, generating $13.1 billion in profit on sales of $46.3 billion.

One potential reason for the decline is the increasing prevalence of smartphones worldwide, especially in developed countries, meaning growth is slowing as the market becomes saturated. In the U.S., more than half of mobile-phone users have a smartphone, according to IDC. Many remaining customers are looking for alternatives to the newest iPhone 5, which starts at $199 with a two-year contract, said Ramon Llamas, an IDC analyst. Samsung offers more than 80 touchscreen smartphones.

“It’s become more and more obvious that the iPhone isn’t the only smartphone on the block,” Llamas said.

Apple probably sold about 48 million iPhones during the quarter, according to the average of analysts’ estimates compiled by Bloomberg. Analysts also predict Apple sold 22.4 million iPads, including both the iPad mini and the model with a larger screen, and 5.1 million Macs.

Critical Call

Ben Reitzes, an analyst at Barclays Plc, said comments from Cook and Chief Financial Officer Peter Oppenheimer on a conference call with analysts following the financial results will be the company’s most important in years. Apple needs to address questions about iPhone demand as well as whether profit margins are tightening because of the cost of making new products, he said. Apple said in October that its profit margins were lower because of the cost of overhauling its product lineup.

Six years after the iPhone debuted and almost three years after the iPad’s unveiling, many investors are asking where Apple’s next area of growth will be.

One possibility is outside the U.S. in developing countries such as China. Apple is considering introducing a lower-cost iPhone to appeal to customers and where mobile-phone carriers typically don’t subsidize the purchase of new smartphones, people familiar with the matter said earlier this month. Without a wireless carrier’s subsidy, the cheapest iPhone now costs $450, while the top-of-the line model is $850.

New Products

“When you get in to these emerging markets where there is no subsidy, that’s a lot of money,” IDC’s Llamas said.

Apple’s business model of selling products at a high profit margin leaves it room to introduce a lower-cost device. Without doing that, it risks losing out on sales in the faster-growing part of the market, said Walter Price, managing director at RCM Capital Management, which owns more than 2 million Apple shares worth more than $1 billion.

“They have had this luxury of skimming the cream of the market, and those days are ending,” said Price. “Revenue growth is definitely moderating and margins are definitely going down.”

In addition to a cheaper smartphone, Apple also has the potential to generate new sales if it introduces a more comprehensive television product with services that link it to the iPhone and iPad, said Barclays’ Reitzes. The company now only sells a $99 device that plugs in to a TV.

Slower Pace

Some analysts, including Katy Huberty of Morgan Stanley, have said the worries about Apple’s growth are overblown, and suggested investors use the recent stock slide as an opportunity to buy.

Of the analysts covering Apple, 52 have a buy rating, while nine recommend holding, and two recommend selling, according to data compiled by Bloomberg. Even with the stock’s recent slide, Apple remains the biggest money-maker in the technology industry, with iPhone sales in the fourth quarter alone exceeding the revenue of Google Inc. (GOOG) or Microsoft Corp. (MSFT)’s entire businesses. According to Canaccord Genuity, Apple collects about 60 percent of the profits in the smartphone market.

Still, Apple is moving away from a period of “hyper growth” because it can’t keep up the pace it has maintained for the past five years, according to Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co. If its growth continued at the same pace for another five years, revenue would reach $1.2 trillion, or the size of Australia’s gross domestic product, he said.

“Apple’s growth is slowing.” Sacconaghi wrote in a Jan. 3 report. “It has to.”
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