Apple's profit dips, but 31.2M iPhone sales beat expectations

iPhone 4 helps drive Apple smartphone sales
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Apple (NASDAQ:AAPL) reported a decline in its quarterly net profit, from $8.8 billion a year ago to $6.9 billion in its most recent quarter. But the company's sales of iPhones during the period--31.2 million units, up from the 26 million it sold in the year-ago quarter--beat Wall Street expectations of around 27 million units. Apple CEO Tim Cook partially attributed the company's better-than-expected iPhones sales on shipments of the company's iPhone 4.

Click here for Apple's quarterly iPhone and iPad sales since 2007.

"We are especially proud of our record June quarter iPhone sales of over 31 million and the strong growth in revenue from iTunes, Software and Services," Cook said. (Apple recorded fully $4 billion in revenue in the quarter from sales in its iTunes store. Click here for that story.) "We are laser-focused and working hard on some amazing new products that we will introduce in the fall and across 2014."

During Apple's earnings conference call, CFO Peter Oppenheimer said that Apple recorded stronger-than-expected iPhone sales in a number of established and emerging markets including the United States, India and elsewhere. Indeed, Cook noted that increased sales in the United States during the quarter represented an "unusual pattern" but that Apple is "very, very happy with this." Apple's U.S. iPhone sales increased 51 percent year-over-year during the company's most recent quarter--a noteworthy number considering the company introduced its iPhone 5 almost 9 months ago.

While iPhone sales in the United States and elsewhere were up, sales in China were down. Cook explained that sales in mainland China were up slightly, though not as much as in previous quarters. He attributed that to a number of factors, including sluggishness in the broader Chinese economy. He also said that Apple's Chinese sales were dragged down by a 20 percent fall in sales in Hong Kong, and Cook said that "it's not totally clear why that occurred."

Oppenheimer said that the iPhone 5 "remains by far the most popular iPhone" but that Apple is also happy with its iPhone 4 and 4S sales. Oppenheimer did not break out specific iPhone 5 sales vs. older models. In his comments during the company's earnings conference call, Cook said that Apple witnessed "significant growth" in iPhone 4 sales. He said that sales of less expensive, older iPhone models expanded during Apple's most recent quarter compared with previous quarters, and that Apple expects to continue to work on expanding and improving those lower-end sales. Cook said the iPhone 4 is suited to new smartphone customers and that "it's a great way for a buyer to get into the iOS ecosystem. The stickiness of the platform is huge."

In response to a question about possible saturation in the high-end smartphone market, Apple's Cook said he does see the potential for expansion in the segment. Specifically, he said Apple is planning to release new products in both existing and new categories to drive sales, and he expects Apple to expand distribution via channels including new wireless carriers and new retail stores. Finally, Cook said Apple expects to increase sales into the enterprise segment. "I think we have lots of growth opportunity," he concluded.

Apple shipped 37.4 million iPhones and 19.5 million iPads in the first quarter of this year, the company's fiscal 2013 second quarter. In its most recent fiscal 2013 third quarter, Apple shipped 31.2 million iPhones and 14.6 million iPads. A year ago Apple shipped 17 million iPads.

Oppenheimer also offered a few quick stats on Apple's iOS progress. He said the company now counts a total of 900,000 iOS apps, of which 375,000 are intended for the iPad. He said that Apple has paid a total of $11 billion to its iOS developers, and half of that figure has been paid during the past 12 months. Oppenheimer said Apple counts 320 million iCloud accounts and has transmitted 900 billion iMessages and 8 trillion push notifications.

As for the company's financials, Apple posted revenue of $35.3 billion, up slightly from the $35 billion it made a year ago. The company's gross margin during the period was 36.9 percent, down from 42.8 percent in the year-ago quarter.

In the coming quarter, Apple predicted an increase in revenues (between $34 billion and $37 billion) and a relatively stable gross margin of between 36 percent and 37 percent.

The iPhone vendor's stock rose by around 4 percent in after-hours trading immediately following the release of its results, to around $436 per share.

Apple's earnings report comes amid rumors that the company is preparing to release a less-expensive iPhone. According to a range of media reports, including those from outlets such as Bloomberg and the Wall Street Journal, Apple is in the final phases of preparing to release a low-cost iPhone in order to address emerging markets where consumers aren't able to purchase the company's existing phone products. According to recent reports, the low-cost iPhone could cost around $400, compared with the $650 a new iPhone 5 costs. Reports indicate Apple will announce the low-cost iPhone (reportedly coming in a range of colors) when it announces a new iPhone 5S (reportedly carrying an improved camera and a fingerprint scanner) sometime this fall, likely in September.

According to ABI Research, Apple was the world's third-largest mobile phone manufacturer in the first quarter, with 9.2 percent of the global market, behind heavyweights Samsung Electronics (with 27.9 percent) and Nokia (NYSE:NOK) (with 15.3 percent). However, in sales of smartphones alone, Apple trails only Samsung. Samsung is expected to report its quarterly earnings on Friday, and analysts generally expect the company to outsell Apple in smartphones due to the recent release of Samsung's flagship Galaxy S4 Android smartphone.

For more:
- see this MarketWatch article
- see this FierceMobileContent article
- see this release

Special Report: Wireless in the second quarter of 2013

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