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Apple Inc. (AAPL) Earnings: Can it Deliver?

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Apple Inc. (AAPL)Numerous investors are cautious of Apple Inc. (NASDAQ:AAPL) shares as the company’s revenue and EPS growth has slowed down. Many former Apple Inc. (NASDAQ:AAPL) Bulls have become pessimistic about the company’s ability to innovate and roll out more game-changing products like the iPhone and the iPad. However, Apple Inc. (NASDAQ:AAPL) still has a steady stream of revenues and profits, and can sell a lot more of its existing products, while it focuses on its R&D.

Decelerating Growth

In the last quarter, Apple Inc. (NASDAQ:AAPL)’s total revenues grew 11% Y/Y to $43.6 billion, and its net income was $9.5 billion, which represents a net income margin of 22%. Apple Inc. (NASDAQ:AAPL)’s net income a year ago stood at $11.6 billion, and this decrease in 2QF’13 was largely attributable to the company selling more low-end phones which have lower ASPs. In the most recent quarter, Apple Inc. (NASDAQ:AAPL)’s gross margins stood at 37.5% which was a decline of almost 10% compared to a year ago gross margin of 47.4% for the iPhone maker.

Apple Inc. (NASDAQ:AAPL) had been growing its iPad unit sales to a solid 19.5 million units, which brought in revenues of $8.7 billion, representing a 40% Y/Y increase. But the increase in iPad revenues was overshadowed by the only 3% growth in iPhone revenues and no new announcements of a significant product launch.

Lowering prices; competition is rampant

Apple has been trying to make the iPhones more affordable in developing countries in Asia. The company has been selling more of the older generation iPhone 4 and iPhone 4S units relative to the newer handsets in the Asian markets. As a result of the price cut, Apple’s overall average selling price trickled down by roughly $28 in the last quarter, compared to 1QF’13.

In line with the iPhone, Apple has been slashing the prices of the iPad as well. Apple’s lower priced iPad Mini gained sales momentum, and trickled down the average selling price of iPads by roughly $18. If Apple can continue to grow the unit sales of its iPhone and iPad product lines throughout the rest of 2013, the company will be fine with lowering its prices further.

The company continues to face a lot of competitive pressures in the mobile devices market especially from Google Inc (NASDAQ:GOOG) Android devices. Google Inc (NASDAQ:GOOG) is increasingly becoming a hardware device player with its Nexus product line, and Motorola Mobile as well. And also the company’s Android OS leads the smartphone industry by a big distance. Android OS had a 75% market share in smartphone shipments, and Apple’s iOS had only 17.3% piece of the pie in the first quarter of calendar year 2013, according to IDC.

As a result, Apple has to cut down prices of some of its handsets to stay competitive with Google Inc (NASDAQ:GOOG) and Samsung. If the company can drive up its unit sales across the globe and strike up carrier partnerships in China, the company can afford to lower its margin profile, but bring in more dollar profits.

Product pipeline

Speculations about Apple’s product introductions have been rife, and vary widely. And recent news of the company has been suggesting that Apple has been ordering larger screen prototypes of its iPhone and iPad devices to keep up with competitors. Apple’s biggest rival, Samsung has been performing very well and is now the top smartphone maker with 33.1% market share, whereas Apple had 17.9%, according to Strategy Analytics.

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