Analyst: Forget the iPhone, Apple Needs a New Product

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AppleĀ (NASDAQ:AAPL) stock fell off the cliff on Monday, shedding about 8 percent of its value overnight after the technology company reported results for its fiscal first quarter, which ended in December. Shares closed Monday’s regular trading session at $550.50 apiece and opened on Tuesday at $508.89, falling as low as $502.08 before recovering slightly, as investors balked at what was an ostensibly weak quarter.

Here are the numbers: Quarterly revenue increased 5.6 percent on the year to a record $57.6 billion the the company’s fiscal first quarter, beating the mean analyst estimate of $57.5 billion. Earnings increased 5 percent to $14.50 per diluted share, also beating the mean analyst estimate of $14.09 per share. Net profit was flat at $13.1 billion, while Apple’s gross margin narrowed to 37.9 percent from 38.6 percent. International sales accounted for 63 percent of total sales, up from 61 percent in the year-ago period.

The “biggest issues with AAPL’s Dec-13 report,” wrote analysts at Piper Jaffray in a research note published Monday evening, were not the actual revenue or earnings results, but that “iPhone units missed Street estimates by 7% and the company implies iPhones may be close to flat y/y in March.” Sales estimates missed expectations “despite the addition of China Mobile (NYSE:CHL) (as well as DOCOMO and T-Mobile with no y/y comps).” Apple sold 51 million iPhones in the quarter, an all-time quarterly sales record that fell short of expectations for 55 million sales. Actual iPhone unit sales grew 7 percent on the year compared with expectations for double-digit growth.

Piper Jaffray analysts suggest that the discrepancy can be explained by the increasing saturation of the U.S. smartphone market and a slowdown of its growth. The market “is close to operating on upgrades as the bulk of product sales, which may imply flattish growth going forward from the US,” wrote the analysts. “We believe this may imply iPhone growth rates slower in CY14/CY15 than we previously expected and have adjusted our iPhone unit expectations for those two years by ~7%.”

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