Latest Apple Earnings Report Signals a Buying Opportunity
By: Chad Fraser, Investing Daily
Apple (NasdaqGS: AAPL) disappointed investors by reporting lower-than-expected earnings and sales on Tuesday. The news sent the stock down 5%.
The latest Apple earnings report marked the first time in 39 quarters that the company had fallen short of expectations on both the revenue and profit sides.
Apple Earnings Report Shows Strong Growth Despite Stumble
In Apple’s 2012 third quarter, which ended June 30, 2012, its sales rose 22.6%, to $35.0 billion from $28.6 billion a year ago. Earnings rose 20.7%, to $8.8 billion, or $9.32 a share, from $7.3 billion, or $7.79 a share. Analysts had been looking for profits of $10.36 a share on $37 billion of sales.
During the quarter, Apple sold 26.0 million iPhones, up 28% from a year ago. iPad sales volumes jumped 84%, to 17.0 million units. The number of Mac computers sold rose 2%, to 4.0 million. iPod sales fell 10%, to 6.8 million units, as users switched over to iPhones.
Disappointing iPhone Sales Seem Temporary
Even though iPhone sales rose sharply, they were short of the 28.4 million units that Wall Street was expecting. They were also down sharply from the 35.1 million that the company sold in the previous quarter.
The reason? Apple has reportedly been working on the iPhone 5, with the launch expected this fall, and users are holding off on upgrading their phones until the new model comes out. While the release is likely to spur sales again, there is some concern about the fact that Apple only updates the device once a year, while competitors like Samsung typically crank out several new smartphones in that time frame.
“Pressure is mounting,” Michael Obuchowski, a portfolio manager at North Shore Asset Management LLC, told the San Francisco Chronicle. “Because everybody else has a much faster design cycle, Apple has to come up with a new phone that’s competitive not just when it comes out, but will stay competitive for a long period of time. That’s going to be increasingly difficult.”
European Slowdown Casts a Shadow Over the Latest Apple Earnings Report
Also causing concern was the effect that the European recession is having on the company’s sales. CEO Tim Cook admitted to being particularly disappointed with Apple’s performance on the continent:
“The geography that did not perform well was Europe,” Cook said. “Europe was essentially flat, and that really hampered our total result. France, Greece and Italy were particularly poor, and Germany was also similarly a single-digit positive growth for the quarter. Eastern Europe was strong, materially stronger than Western Europe.”
Even so, according to the Apple earnings report, revenue still grew 16% in Europe from a year ago, though it was down 6% sequentially. That weakness was also more than offset by strong year-over-year gains in the Asia-Pacific region (up 25%), Japan (up 33%) and the Americas (up 26%).
“Three Upcoming Catalysts” Will Spur Apple’s Stock
On the positive side, the company has—or is rumored to have—a number of important products set for release in the coming months. And it’s also reportedly working on an agreement with China Mobile, that country’s largest wireless provider, with 650 million subscribers. These are a few of the reasons why Sterne Agee analyst Shaw Wu is still bullish on the stock:
“We are buyers on weakness as the big picture remains that there are three key upcoming catalysts, namely the 6th generation iPhone refresh [iPhone 5], smaller form-factor iPad and China Mobile,” Wu wrote in a note quoted on TheStreet.com.
As Wu notes, the company is rumored to be developing an “iPad Mini,” a smaller, cheaper version of the iPad. Such a device would directly compete with tablets like Amazon.com‘s (NasdaqGS: AMZN) Kindle Fire, which retails for around $200. The rumor mill was fed this week by a report from KGI Securities that said Apple would be ready to launch the smaller iPad this September.
As well, a potential deal with China Mobile would have tremendous upside for the stock. Right now, the iPhone can’t run on China Mobile’s network because the carrier uses an incompatible wireless standard. However, Qualcomm (NasdaqGS: QCOM) has now launched a new chip that will function on China Mobile’s network. According to Forbes, incorporating that technology in the next iPhone could double the size of the device’s market in China.
Dividend Is Now a Reality
One thing that was lost in the coverage is that the company has followed through on its promise to pay a dividend, a move it first announced in March.
Apple’s board of directors has declared a quarterly cash dividend of $2.65 a share, with the first installment payable on August 16, 2012, to shareholders of record as of the close of business on August 13, 2012. The annual rate of $10.60 a share yields 1.84%.
To uncover 5 stocks that pay dividends of 6, 8, and 10%, check out 5 High-Dividend Stocks For The Prudent Investor.
Article originally posted here.