Apple Earnings Miss Points to Slowing Growth

Now that the Apple earnings report missed missed Wall Street expectations for the second time in a year, it has some questioning whether the company is finally coming back to earth.

Revenue for Apple Inc.'s (Nasdaq: AAPL) third quarter was $35.2 billion, missing the consensus of $37.1 billion and only showing year-over-year growth of 23.2%. That growth rate was far below the 82% in reported for Q3 2011.

Profit growth slowed as well. Apple earned just $9.32 per share in the June quarter compared to analyst expectations of $10.38. That put Apple's bottom-line growth at 27.5% year over year, little more than a quarter of last year's eye-popping 125%.

Disappointed investors sent AAPL down 5% in after-hours trading.

The Apple earnings miss was driven mostly by lower iPhone sales of 26 million, while analysts had expected 29 million, although Mac sales also were short of expectations.

Several Wall Street analysts had lowered their expectations for iPhone sales in recent weeks, but Apple even missed those reduced numbers.

The bleak news carried over to gross margin as well, which came in at 42.8%, short of the consensus number of 44%.

The only positives were the iPad and iPod. Sales of the iPad were 17 million, beating the consensus of about 15 million. Sales of the iPod, which have been slowing for years, were actually up 10% to 6.8 million.

But it was the bad news that dominated this Apple earnings report.

Ominously, Apple lowered guidance for the current quarter (Apple's Q4) to EPS of $7.65, significantly under Wall Street's consensus of $10.22. Apple said revenue for the September quarter will be $34 billion, $4 billion less than the analysts' number.

With two misses in the past four quarters – following a streak of more than 20 straight quarters of earnings beats – Apple is starting to show signs it can no longer sustain the amazing growth rates of the past several years.

In all likelihood, Apple's earnings will eventually level off to much more modest growth levels more in line with their Q3 results. The company will continue to earn huge profits – much like Microsoft does now – but the days of exponential growth will be over.

That means AAPL stock won't keep soaring like it has been, either.

Earlier this year, for example, Apple stock shot up from $405 to an intra-day high on April 9 of $644. Apple promptly fell more than 100 points, as investors realized the price had risen too quickly.

While the stock did recover to the $600 level, that episode illustrates how precarious Apple's situation is.

Money Morning Chief Investing Strategist Keith Fitz-Gerald had warned readers about the looming pullback.

"The shares had soared 75% in just five months – one analyst actually described the performance as "euphoric,'" Fitz-Gerald said. "Suddenly, we're seeing all these mainstream-news-media stories explaining why Apple shares are going straight to $1,000. But I know from my own experience as a professional trader that even the shares of the best companies on earth don't go straight up."

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