Apple results strong, but behind the record sales are signs of desperation

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Apple results strong, but behind the record sales are signs of desperation

As we went to press, Apple had just reported its first quarter results and Nokia was about to

By CAROLINE GABRIEL

Published: 20 April, 2011

As we went to press, Apple had just reported its first quarter results and Nokia was about to. For both arch-rivals, the quarter will not be indicative of longer term trends. For Apple, there has been disruption to its supply chain, while Nokia’s future will be hard to judge until it launches its new WP7 devices. Until then, it remains in a state of limbo, and its quarter will reflect that in no uncertain terms. Nokia may be suffering the downward swing of the handset pendulum at the moment, but Apple itself is hovering precariously at the top of the curve. Its own fears that it could start to slide downwards are only reinforced by its hailstorm of legal actions against its challengers, which have even now extended to its key supplier Samsung. And as Google’s own results indicated the company has only just begun in the mobile market, there is a bigger cloud on Apple’s horizon – whether the cloud itself will be its undoing in mobile.

Apple’s quarter beat records as usual, but did not convince that the firm is more than a one-trick pony in mobile. A pretty pedigree pony to be sure, with the iPhone booming on increased US distribution, thanks to Verizon, and international reach. The handset sold 18.65m units in the quarter, up 113% on the year-ago period. However, Apple – like all its rivals – needs to expand beyond the smartphone segment as even the high end starts to commoditize, a process that the large Android ecosystem is better equipped to handle. And the iPad, though dominant in the nascent tablet category, is not yet proving that the category itself is a winner, or will be more than a niche form factor in the wave of new, cloud focused products that will appear over the next few years.

The iPad sold 4.69m tablets, fewer than the 6.1m predicted by analysts or the 7.3m of the holiday quarter. It remains to be seen whether this is a short term supply issue or an indicator of limited demand for the form factor. CFO Peter Oppenheimer said Apple sold "every iPad 2 we could make”, suggesting Apple is experiencing parts shortages though Apple officially said the earthquake was not having a “material impact”and that it was ramping up iPad 2 production. “The iPad has the mother of all backlogs,” said acting CEO Tim Cook.

Overall, Apple’s revenue rose 83% year-on-year to $24.67bn, though the figure was 8% lower than the holiday quarter of 2010. Net profit leapt by 95% to $5.99bn or $6.40 a share, which was flat on Q410. Gross margin slipped slightly, from 41.7% a year ago to 41.4%. Analyst consensus forecasts had looked for revenues of $23.34bn and earnings of $5.36 a share. A strong sign for Apple was that international sales were up to 59% of the total, addressing its historic over-reliance on north America in the mobile business. But for the current quarter, Apple forecast profit and sales below analysts’ predictions, at $5.03 a share on revenues of $23bn, (though it traditionally issues conservative guidance). Gross margin will be down to 38% this quarter, the firm said.

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