Apple (Nasdaq: AAPL) stock plunged more than 8% in after-hours trading after it announced that it sold fewer iPhones than analysts expected in its Q1 of 2014.
Apple sold just 51 million iPhones versus analyst expectations of 56 to 57 million. The iPhone contributes about half of Apple's earnings.
Not helping was that Apple revenue guidance for the current quarter was also below expectations. The company's mid-point of $43 billion missed the $45.74 billion consensus.
However, Wall Street's main beef was with the iPhone miss.
Overlooked is that Apple's other businesses made up for the iPhone's shortcomings. Apple beat expectations on earnings per share – $14.50 versus $14.35 – and barely missed on revenue – $57.6 billion versus $58 billion.
That was made possible in part by the iPad selling more units than expected, 26 million versus 24 to 25 million, and more Macs, 4.8 million versus 4.6 million.
Original post from 1 p.m.:
That's the unfortunate legacy of Apple's mega-boom years from 2010-2012, when it posted 50% or higher earnings growth for nine consecutive quarters.
Apple's long streak of outstanding earnings distorted Wall Street's expectations to the point where only a huge beat is enough to move Apple stock up significantly. But even a minor disappointment will result in a major pullback, particularly in the generally weak market we've seen since the start of the New Year.
Analysts are looking for a strong quarter from Apple, the first of the company 2014 fiscal year and historically its most lucrative because of heavy holiday sales.
The quarter is also an important barometer for how Apple will fare for the rest of the year, as it hints at how the tech giant's new offerings, introduced over the course of the fall, are likely to sell through subsequent quarters.
Here's what to expect from Apple earnings:
Breaking Down Apple (Nasdaq: AAPL) Earnings Expectations
The consensus numbers on AAPL are for earnings per share of $14.35 on revenue of $58 billion. Both would be new all-time highs, and would represent growth of 6.6% on the top line and 4% on the bottom line.
As usual, most investor attention will be focused on iPhone sales, as that iconic product accounts for about half of Apple's earnings. This quarter will tell us how the iPhone 5C is doing, the slightly cheaper and less capable brother to the iPhone 5S.
Most reports have indicated the 5S is much more popular, which will help boost Apple's margins, something that tends to please analysts. Expectations are for a gross margin of 37.5%.
Actual iPhone unit sales are expected to be 56-57 million, about 10 million more than the year-ago-quarter. And that's without the deal with China Mobile, which did not go into effect until after the quarter ended but will open up the iPhone to 700 million new customers.
Analysts are looking for 24-25 million iPad units, a slight increase over last year's 22.86 million.
With regard to the iPhone and iPad, analysts will likely grill Apple over the declining market share of those products in its competition with smartphones and tablets running Google Inc.'s (Nasdaq: GOOG) Android software.
And Mac sales should be about 4.6 million, which would represent a healthy 13.3% gain in a slumping PC market.
One issue that will definitely come up during the conference call will be activist investor Carl Icahn's continued demands for Apple to buy back more shares.