Apple stock tumbles on disappointing iPhone sales

Apple reported iPhone sales Monday that fell well short of analyst estimates as well as guidance for the next quarter that also was lower than expected, sending the stock falling more than 5% in after-hours trading.

Apple said it sold 51 million iPhones in the first quarter of its 2014 fiscal year, which ended Dec. 28. That was a new record, up from 47.8 million last holiday season. But sales fell short of analysts’ expectations that the company would sell 55 million iPhones in the quarter.

“We are really happy with our record iPhone and iPad sales, the strong performance of our Mac products and the continued growth of iTunes, Software and Services,” said Tim Cook, Apple’s chief executive. “We love having the most satisfied, loyal and engaged customers, and are continuing to invest heavily in our future to make their experiences with our products and services even better.”

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In the second quarter ending March 2014, Apple offered guidance that was lower than what many analysts had expected.

Apple said revenue in the quarter would be between $42 billion and $44 billion, short of the analyst consensus of $46.1 billion.

Peter Oppenheimer, Apple’s chief financial officer, said on a conference call with analysts that the underlying performance of the company’s business is stronger than the the guidance would suggest.

Oppenheimer said the lower guidance was due part to a change in the way the company was managing inventory and the fact that the company had a harder time for meeting manufacturing demand for many of its products a year ago.

He also said iPod sales declined 52% in the December quarter, and would continue to fall this coming quarter creating “head winds.”

Overall, a slew of updated gadgets, including new iPads and iPhones, drove Apple to record revenue over the holiday quarter, though profits remained flat.

Apple reported earnings on Monday that showed revenue increased to $57.6 billion from $54.5 billion one year earlier. That slightly beat analyst estimates of $57.46 billion, according to Thomson Reuters.

Profit was the same as a year ago at $13.1 billion.

Thanks to its increasingly aggressive stock buyback program, even though profit was stagnant the company’s earnings per share rose to $14.50 per diluted share from $13.81 per diluted share a year ago. Wall Street analysts had expected Apple to post earnings of $14.09 a share, according to Thomson Reuters.

The disappointing sales of iPhones came as a particular surprise for several reasons.

This was the first full quarter that both the iPhone 5s and 5c were available. There had been some chatter that the iPhone 5c was not doing well with consumers. And there was some question about whether Apple was able to meet demand for the new iPhone 5s.

In addition, these new iPhones were available in China at the same time as the rest of the world. Apple didn’t start selling the new iPhone 5 in China until late December 2012, making for a favorable comparison this year.

So, was this a good quarter? Did expectations run too far ahead of reality?

“While earnings may be flat, most companies would kill for their fundamentals,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy. “Their products are high quality, their customers love them, and they are sitting on an obscene amount of cash.”

Moorhead added: “Fifty-one million phones is an incredible number in itself.”

In a note to clients, Piper Jaffray analyst Gene Munster wrote that “iPhone units were disappointing.” Though he applauded higher average selling prices and higher gross margins.

The company sold 26 million iPads in the first quarter, up from 22.6 million the previous year. That topped analysts’ consensus estimates of 24.6 million iPads in the December quarter.

That also reversed three straight quarters of declines, thanks to the help of the new iPad Air and the new iPad mini with Retina display that debuted midway through the quarter.

Apple sold 4.8 million Macs, compared with 4.1 million in the December 2012 quarter.

Apple’s stock closed up $4.43, or .8%, to $550.50 at the end of trading Monday in anticipation of earnings being released after the bell. In after-hours trading, the stock was down $30.53, or 5.6%, to $519.97.

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