'Disappointing' Third Quarter Takes a Bite Out of Apple

It was a tough quarter for Apple. It reported sales Tuesday that rose 24% from a year ago and a profit up 21%. Net income rose to $8.8 billion, or $9.32 per share, in its fiscal third quarter. Sales rose to $35 billion, buoyed by record sales of 17 million iPads.

Poor Apple! The company clearly is struggling.

No, really. The trouble is that Apple missed analysts' forecasts and barely made its own conservative predictions. For example, the $9.32 per share fell short of analysts' expectations of  $10.36 per share. The $35 billion in sales missed analysts' forecasts of $37.2 billion.

Apple decided to sell iPad 2 at a $100 discount, which boosted unit sales. But analysts were concerned that the lower price is hurting revenue. Average revenue per iPad fell to $538 last quarter from $653 a year ago. In addition, delays slowed the stocking of store shelves with iPads in China.

"But the biggest disappointment was Apple's No. 1 revenue driver: the iPhone. The tech giant said it sold 26 million iPhones during the quarter -- a steep drop-off from previous quarters.... Wall Street analysts had been expecting about 29 million of the smartphones to be sold." (http://money.cnn.com/2012/07/24/technology/apple-earnings/index.htm?hpt=hp_t2)

Shares of Apple fell 5%.

This is hardly a crisis. CNN calls Apple the world's most valuable company. But it is a problem when analysts are overly optimistic and your company doesn't live up to their forecasts. Apple needs to emphasize its conservative internal predictions to the investment community to be sure its voice is heard. Nevertheless, that 5% slip is probably a blip, not a trend.