Apple upbeat over iPhone sales drive
Apple stands at a turning point with Wall Street as it suggested that earnings could return to growth on the back of renewed momentum in iPhone sales. Tim Cook, chief executive, said Apple was "stronger than ever" and would consider returning more cash to shareholders by the beginning of 2014, amid calls for an increased buyback programme. The more positive outlook comes despite an 11 per cent drop in full-year net profits and after a year when Apple’s share price fell heavily after hitting an all-time high. The iPhone maker reported a 5 per cent year-on-year decline in earnings to $8.26 per diluted share in its fiscal fourth quarter, beating consensus forecasts at $7.93 per share. Revenues were up 4 per cent to $37.5bn while net income fell to $7.5bn. The results mark a sharp slowdown in growth compared with a year ago as its gross margin narrowed from 40 per cent to 37 per cent. While iPhone unit sales grew 26 per cent year over year to 33.8m, exceeding expectations, iPad sales of 14.1m were flat on the previous year and below analysts’ forecasts, as customers awaited new devices. However, Apple’s guidance on revenues and margins implies that its earnings could return to growth for the first time in a year, according to Walt Piecyk, analyst at BTIG Research. Gross margins, a metric watched closely by Wall Street, are depressed by $900m worth of revenue that will be deferred to future years, as a result of Apple’s decision to give away its Mac operating system and its iWork and iLife apps for iPhone and iPad. Mr Cook said the quarter represented a "strong finish" to its financial year and again hinted at the prospect of "new product categories with significant opportunities" in the coming year. A stronger push into television and a new wearable "iWatch" are rumoured for 2014 launches. "We are winning with our products in all the ways that are most important to us," namely usage, customer satisfaction and loyalty, Mr Cook added. Apple said more than $36bn had been returned to shareholders in the past five quarters through dividends and share buybacks, as the company comes under pressure from activist shareholder Carl Icahn to scale up its cash return programme to $150bn. Mr Cook said the board was engaged in an "ongoing" discussion about capital reallocation, and would "actively seek" feedback from investors on its future plans. "We will announce any changes to our programme in the first part of the new calendar year," he said. Apple said that with more than three-quarters of its cash now held offshore, its domestic cash reserves that are available for paying dividends and buying back shares have "stopped accumulating". "We have invested essentially all of the increase in net cash since the beginning of our capital return programme in 2012," said finance chief Peter Oppenheimer. Apple gave guidance on revenues for the crucial Christmas quarter of $55bn to $57bn, ahead of Wall Street’s current expectations, but with gross margins of 36.5 per cent to 37.5 per cent, on the lower end of analysts’ expectations. Its stock initially fell 4 per cent in after-hours trading but then recovered to gain as much as 1 per cent, as Apple explained that margins would be closer to 38.5 per cent if not for the deferred revenues from its software giveaway. It launched its latest iPhones in the last few days of September. The company said it had sold 9m of its flagship devices in the opening weekend, up from 5m over the previous launch weekend the year before. The smartphone went on sale in China on the same day as in the US and Europe for the first time, but the iPhone 5s, which boasts gold casing and a fingerprint reader, has faced supply shortages. Anecdotal reports have suggested that the more expensive 5s has been outselling the cheaper, plastic 5c, which comes in a range of colours. The iPhone’s average selling price continued to fall in the last quarter, to $577 from $619 a year ago, Apple said, as more customers opted to buy cheaper or older versions of its smartphone. The iPad stabilised at an average of $439. Last week, Apple revealed its latest iPads, which will go on sale on Friday, completing its Christmas line-up for 2013. The company said it had sold almost 170m iPads in total since its tablet first emerged in 2010. Apple stock is still trading below its all-time high of $702.10 but has seen a 20 per cent rally in the past three months. It closed at $529.88 on Monday, up less than 1 per cent for the day.