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.:
It's the worst of both worlds: Apple (Nasdaq: AAPL) stock will get hard if it reports lousy earnings today after the closing bell, but good earnings won't affect the Apple stock price much at all.
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.
So far Apple has been polite with Icahn, and has bought back at least 47 million shares over the past year (which has improved its EPS, by the way), and that has helped buoy the Apple stock price, currently trading at about $550. But the company may not be willing to do much more.
What Will Move Apple Stock Higher
One thing you won't hear about in Apple's earnings call is plans for new products, such as the long-rumored iWatch or Apple television. CEO Tim Cook will say that Apple has exciting products in the pipeline, but won't get any more specific.
But one of those new products - or both, or something else - is what the company needs to push Apple stock back to its previous all-time high just north of $700 and beyond.
The deal with China Mobile certainly helps, but there simply isn't enough growth left in the smartphone and tablet markets to move Apple stock in a big way. The company needs a new product category to create a fresh conduit of profits in order to again start chasing that elusive $1,000 price target.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.