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Apple Inc. (AAPL): The Stock’s Turnaround May Become A Reality

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Apple Inc. (NASDAQ:INTC)Apple Inc. (NASDAQ:AAPL) reported a fairly solid quarter. While many may like to dismiss the potential of Apple Inc. (NASDAQ:AAPL), and what it can offer investors, I have to be a bigger optimist than the rest of the Street. It is really hard to find a product that brings out greater life from its consumers than an Apple can. Perhaps, just a bit of the rebelliousness within all of us is satisfied by being an Apple customer.

Earnings went all over the place

The company was able to generate some fairly strong revenue growth from its tablets. Gross margin compression came as a result of some unfavorable accounting changes, along with greater contribution from the Apple iPad mini. The problem with the Apple iPad mini is that it has a lower gross margin, which lowered the total gross margin of the company to 37.5% from a 47% gross margin a year earlier. The lowered margin is a discouraging signal, as Apple Inc. (NASDAQ:AAPL) has finally resorted to lower-pricing in order to maintain its competitive position in tablets.

On the bright side, the company was able to grow revenue by 7% in the Americas (year-over-year). The seasonal demand has definitely dropped off with quarter-over-quarter revenue declining by 31% (consumer electronics tend to experience added demand toward the holiday season). Apple’s revenue growth was driven by the iPad (which grew by 40% year-over-year). iTunes also contributed to revenue growth by 30% year-over-year (although its impact is fairly immaterial to shareholders). That being the case, iPhone unit volume rose by 7%, part of the weakening volume was the lack of support from China as China year-over-year revenue only rose by 8% (analysts were hoping for China to contribute more to top line performance). The iPhone generated revenue growth of 3% year-over-year. Consumers aren’t anticipating a new iPhone model until the middle or end of 2013. The first quarter growth performance shouldn’t be troubling, as Apple’s revenue growth is likely to improve due to a product refresh cycle, the larger build out of 4G LTE on Sprint, Verizon, and AT&T networks should encourage product upgrades in fiscal year 2013.

Apple Inc. (NASDAQ:AAPL)’s net sales grew from $39.186 billion to $43.603 billion, year-over-year. The growth in sales was also followed by cost increases. With the cost of sales increasing from $20.6 billion to $27 billion year-over-year, total operating expenses increased from $3.180 billion to $3.791 billion. The company reported a decline in net-income (guess there’s a first for everything). The company reported $9.547 billion in net income; year-earlier net income was at $11.622 billion. Net income declined by a staggering 17.8%, year-over-year. With earnings per share declining from $12.45 in 2012 to $10.16, Tim Cooks announced a $100 billion share buy-back program in order to boost the earnings per share figure. The recent share buy-back announcement is the biggest in corporate history. Returning cash to shareholders became a priority as the company’s basic EPS figures tanked in the latest earnings announcement.

How this announcement affects others in the space

The iPad mini certainly made it more difficult for Microsoft Corporation (NASDAQ:MSFT) to enter the tablet space, leaving Intel shareholders bummed out. Intel’s attempt into mobile was thwarted by the Apple-Qualcomm duo. That being the case, Microsoft’s position in consumer electronic is likely to improve with the launch of its Xbox 720, rumored to come in Christmas of 2013. Microsoft’s bigger growth catalysts will be Skype, which grew call volumes by 50% over the previous year. Skype will be integrated with Microsoft messenger and will also be on Xbox 360’s. Xbox live was able to increase its membership figures by 18%. Microsoft’s launch of Windows 8 will be a financial success, as Microsoft’s dominance in the desktop computing space is pretty well established.

Apple investors shouldn’t expect Microsoft Corporation (NASDAQ:MSFT) to encroach upon the tablet territory with any reasonable financial success. But, at the same time, Apple Inc. (NASDAQ:AAPL) shouldn’t be able to expect any significant improvements in desktop and laptop sales, as Microsoft’s Windows 8 launch is likely to keep Microsoft’s position in the computing space firmly established. Apple’s Mac division generated 7% year-over-year growth in the latest quarter, while Microsoft Corporation (NASDAQ:MSFT)’s Windows division was able to grow revenue by 23%, comparatively.

Amazon.com, Inc. (NASDAQ:AMZN)’s Kindle will continue to be crushed by the iPad mini. I can literally hold the iPad mini in one hand (show-stopper); case closed. Apple was able to grow iPad sales by a staggering 40%, year-over-year.

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