Apple faces great challenge on profit falls

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Apple faces great challenge on profit falls

(Xinhua) 20:29, November 04, 2013

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BEIJING, Nov. 3 (Xinhuanet) -- Apple has long held the position as the most profitable company in the world due to its bestselling handsets, but the tech giant disappoints investors over crunched earnings.

Apple's financial results for fourth quarter of 2013 (ended September 28) which was released lately reported 37.5 billion U.S. dollars in revenue and 7.5 billion U.S. dollars in profit.

That marked a growth of 4 percent in revenue compared to the same quarter in 2012, but year-over-year profits slumped 8 percent.

Company's gross profit margin, a key measure of profitability, fell to 37 percent in Q4, down from 40 percent in the same quarter last year, which represented the first earning decline the company had seen in 11 years.

Although Apple's financial performance in Q4 beat Wall Street estimates, the stocks slipped about 2 percent in after-hours trading as investors concern over their earnings.

Apple's earning dilemma may result from products structure and marketing positioning.

IPhones outshine Apple’s other products

IPhone continued to be the company's prime mover in fiscal income with 33.8 million units sold in the fourth quarter, up 26 percent compared to the same period last year. For the fiscal year, net sales of iphone rose 13 percent from 80.4 billion U.S. dollars to 91.3 billion U.S. dollars which contributed more than half of Apple's revenues.

IPad sales were relatively flat at 14.1 million, up 100,000 from the year ago quarter.

Macs decreased by 7 percent over the same period, from 4.9 million in Q4 last year to 4.6 million this year.

The selling of iPod significantly slipped by 35 percent year over year so that it didn't even merit a mention in Apple's earnings call. It accounted for just 3 percent of Apple's overall revenues.

Overall revenues from all Apple products except for iPhones and for iTunes, software, and services were down year-over-year, according to Macworld magazine.

Lack of innovation

Tepid iPhone 5S and plastic iPhone 5C unveiled late this quarter did not cheer customers up any more.

While it had been a long time since Apple made game-changing or impressive products. People may reasonably wonder: Why is that Apple iWatch taking so long? Where's apple TV ?

Apple CEO Tim Cook has hinted at Apple moving into new product categories, including wearables at Apple's Q4 earnings call.

"If you look at the skills Apple has from hardware, software and services and an incredible app ecosystem—these set of things are very, very unique", Cook said when asked about plans to enter new markets. "We obviously believe that we can use our skills in building other great products that are in categories that represent areas where we do not participate today."

Apple’s market targeting and competition in lines

Apple's sluggish growth may be due to increased competitors from both the tablet and smartphone sectors.

Samsung, Huawei, and HTC manufacture phones that operate on Android operating system, which competes fiercely with Apple in cost-conscious markets.

Apple's market share decline was inevitable because it solely targeted the premium segment of the market, according to a research.

"The biggest threat to Apple's tablet market share are the low cost Android tablets -- Apple essentially doesn't compete in the low end," analyst Tim Coulling with research firm Canalys said.

Apple's iPad market share has slipped to its lowest since launch in 2010. However, "Apple doesn't chase market share. Its business is all about revenue and margin over volume, which is something very different to the other tablet manufacturers, who mostly operate on very thin margins and attempt to make it up in volume," added Coulling.