Apple Earnings SLUMPED Because of This Phenomenon

Apple (NASDAQ:AAPL) yesterday reported the slowest quarterly growth in two years, the result of more consumers buying the least expensive iPhones and iPads. Revenue and net income posted increases of just over 20 percent, cause for celebration at most companies, but falling short of the breakneck pace investors have come to expect from Apple.

Apple has only come in under analyst expectations twice in the last ten years. “We became too confident, in our expectations, that Apple had literally a perfect pulse on end demand throughout the globe…and quite simply, that wasn’t the case this quarter,” David Rolfe, chief investment officer at Wedgewood Partners, told the Associated Press.

Volume certainly didn’t disappoint — Apple sold 17  million iPads in the April to June quarter, beating expectations, and 26 million iPhones, at the low end of expectations. But Apple’s average selling prices for the gadgets declined to levels last seen in 2010 for the iPhone and the lowest levels ever in the case of the iPad.

Not only were consumers buying the less expensive versions of the devices, but Apple recently began offering even lower-priced introductory models. When Apple launched the new iPad in March, it continued to offer the iPad 2 at a discounted price, $100 less than comparable third-generation models. Apple also continues to offer the iPhone 3GS and iPhone 4, even though it launched the newer iPhone 4S back in October.

Another factor causing revenue to fall short was the strengthening dollar, which mean that overseas sales at constant prices translated into fewer American dollars for Apple.

Sales in China, which has been a growth engine for the company, also declined compared to the previous quarter. But CEO Tim Cook chalks it up to the iPhone 4S having gone on sale during the quarter ended in March and the company having stocked inventories in the country.

Cook said he didn’t see any effect of China’s economic slowdown on sales, but troubles in Europe, on the other hand, were quite evident — sales on the continent grew just 16 percent in the recent quarter.

Cook also said the slowdown in iPhone sales, which were up 28 percent from a year ago, but down from the previous quarter, was the likely result of growing anticipation for a new model, which is largely speculated to be coming in September or October, though as usual, Apple itself has given no indication as to when the new phone will arrive.

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Net income in Apple’s fiscal third quarter was $8.8 billion, or $9.32 per share, up 21 percent from $7.3 billion, or $7.79 per share, in the year-ago period. Analysts polled by FactSet had expected earnings of $10.37 per share.

Revenue was up 23 percent to $35 billion. Analysts were expecting $37.5 billion.

Apple forecast earnings of $7.65 per share for the current quarter, well below the average analyst forecast of $10.26. Apple usually far surpasses its own earnings expectations, but for the just-ended quarter, Apple’s cautious forecasts were more accurate than those of analysts. Apple is forecasting year-over-year profit growth of just 9 percent for the current quarter, and $34 billion in revenue, $4.1 billion short of the average analyst estimate.

Concerns that Apple’s projections may prove true caused a pull back yesterday — Apple shares fell $31.92, or 5.3 percent in after-hours trading.

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