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Apple Q2 2013 Results Show Higher Revenues, Lower Profits

In an earnings call marked by constant cheerleading from both Apple CEO Tim Cook and CFO Peter Oppenheimer, Apple has reported expected profits for its second fiscal quarter of 2013. With record-breaking revenues of $43.6 billion — up $4.4 billion from $39.2 billion in the year-ago quarter — and net profits of $9.5 billion ($10.09 per diluted share), the company’s profits are down $2.1 billion compared to the second quarter of 2012. Also notable is Apple’s gross margin, which dropped over 10 percent to 37 percent. What’s more, Apple projects gross margin next quarter to be between 36 and 37 percent, at least 1 percent below what
analysts had expected Apple to project.

Revenues were driven by strong iPhone and iPad sales, with 37.4 million iPhones sold, up 2.3 million from last year’s Q2, and 19.5 million iPads, up 7.7 million. Those numbers are nicely positive, but the news wasn’t as rosy for Apple’s other hardware lines. Mac sales dipped ever so slightly, with just under 4 million Macs sold, compared to precisely 4 million in the year-ago quarter. Cook cited the currently depressed state of the PC market as context for that dip, but reasserted Apple’s interest in the Mac product line. Unsurprisingly, iPod sales dropped even more, with 5.6 million iPods sold, down 2.1 million from the year-ago quarter. As before, the iPod touch accounted for over half of all iPod sales. Despite its drop-off
in sales, the iPod still holds over 70 percent of the MP3 player market, begging the question of just what devices make up the other 30 percent.

Cook acknowledged that Apple’s growth rate has slowed and gross margin has fallen, and said that the declines in Apple’s stock price were “frustrating to all of us.” That may explain the aggressively upbeat tone of the call in the face of reduced expectations. It almost felt as though the entire call was an attempt to sell Apple stock — cheap at twice the price! — with an increased share repurchase program and higher dividend as the “product’s” updated features.

Sprinkled among the cheerleading were a number of interesting statistics, including:

  • Apple’s mattress continues to overflow with cash, now at $144.7 billion.
  • There are now 402 Apple stores worldwide, with 151 outside the United States.
  • 30 more Apple stores are slated to open in 2013.
  • Over the second quarter, 91 million people visited an Apple store.
  • $4 billion in revenues came from Apple’s online stores, software, and services.
  • The iBookstore now holds 1.57 million titles.
  • Apple now pays out $1 billion to developers every quarter.
  • iCloud now boasts 300 million users.

The fall in gross margin was attributed in part to extremely high gross margin in 2012, as well as to a higher number of lower-margin products sold during the quarter, such as the iPad mini, and Apple’s desire to fill the channel with 4–6 weeks of inventory. A variety of financial details and adjustments also played into the lower margin, and will continue into the next quarter.

Cook was, as always, coy about future products: his remarks implied that new products would start to appear in the third quarter of this year and through 2014, but he carefully didn’t say that product refreshes, such as a rumored new iPad or iPhone, would be delayed until later in the year. He did refer to “new [product] categories” that excited him, but would not be pinned down as to when such new categories would appear. He also acknowledged that if he’d had it to do over again, he wouldn’t have announced the most recent refresh of the iMac in October 2012, but would have waited until January 2013, when Apple was finally able to ship in quantity.

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