If Not iPhone, What's Apple's Next Big Thing?

Apple Shares Take a Hit After Weak iPhone Sales Projections

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Apple sure sold a lot of iPhones over the holidays. But evidence is starting to mount that its flagship product isn't the growth engine it once was.

While sales broke a record with 51 million iPhones sold in the all-important fourth quarter, that actually missed analyst estimates, and projections for the first quarter also fell short of estimates of 54.7 million handsets.

The company also said revenue will be $42 billion to $44 billion in the current quarter, with gross margins of 37% to 38%. Analysts had predicted sales of $46.1 billion and a margin of 37.3 percent, according to data compiled by Bloomberg. Shares fell in extended trading.

The iPhone sales over the holidays indicate that demand may be ebbing for new models of the high-end smartphone -- which is Apple's primary revenue source -- as competitors flood in with new handset and tablet offerings. The numbers are highly anticipated by Apple's investors because the end-of-year shopping season is usually the company's most lucrative period.

The question that hangs over Apple: if iPhone isn't the next new thing, just what is?

"There's a perception problem that they aren't innovating," said Brian Blair, an analyst at Wedge Partners Corp. in New York. "That's why new product announcements will be so critical this year."

Profit was $13.1 billion, or $14.50 a share, for the quarter, little changed from $13.1 billion, or $13.81 a share, a year earlier, Cupertino, California-based Apple said today. Sales rose 5.7% to $57.6 billion. Analysts had predicted profit of $14.07 a share on sales of $57.5 billion, according to the average of estimates compiled by Bloomberg.

Under pressure
Apple Chief Executive Officer Tim Cook is under pressure to boost financial results that have stagnated without the introduction of an entirely new product since the iPad's debut in 2010. In its last fiscal year, the company posted its first annual profit decline in at least a decade. Apple shares rose just 5.4% in 2013, trailing the Standard & Poor's 500 Index's 30% gain.

Apple fell as much as 7.8% in extended trading after the results were released.

Apple's forecast for the current quarter also raised questions as they offer a glimpse of how sales are faring after the release earlier this month of the iPhone on China Mobile Ltd.

"The revenue guidance is a little bit lower than what everybody expected," said Laurence Balter, chief market strategist at Oracle Investment Research, who has the equivalent of a buy rating on Apple shares. Yet he said "the good thing is the margins came in good, the revenue came good, the profits came in solid."

Sales last quarter were fueled by the iPhone 5s and 5c, as well as the iPad Air and iPad mini, which all made their entrances in time for the holiday rush. The new iPhones were available in 100 countries by the end of 2013. Apple sold 26 million iPads compared with analysts' estimates for 25 million units.

Apple's sales in the Americas region fell 1% to $20.1 billion, while sales in Greater China rose 29% to $8.84 billion.

Slowing growth
Samsung Electronics, the world's largest seller of smartphones, also is grappling with slowing growth as it battles Apple for customers buying the most expensive handsets, and rivals such as Lenovo Group and Huawei Technologies for more budget-conscious buyers. Last week, the Suwon, South Korea- based company reported its slowest profit growth since 2011.

Apple also declared a cash dividend of $3.05 a share and said it had returned more than $43 billion in payments to date. The company has been pressured to return more money to shareholders.

Billionaire activist investor Carl Icahn last week increased his stake in the company to about $3.6 billion and has been pressing Cook to increase the buyback program to boost Apple's stock price. Icahn's proposal is slated to be considered at the company's annual shareholder meeting next month.

-- Bloomberg News --

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