Apple warned to speed up innovation after mixed financial results

Apple has surpassed market expectations in the company’s latest round of quarterly results, but profit is still declining and chief executive Tim Cook says new products may still be six months away.

The mixed results come as Samsung has just released its latest smartphone, the Galaxy S4, in Australia, stoking fears the Korean manufacturing giant is eating away at Apple’s market share and profit.

The results also come as Apple’s share price has continued to fall. Last September, the company’s shares were at $700. Today they sit at $US406.13 per share.

Apple’s announcement revealed the company earned $43.6 billion in revenue, and $9.5 billion in net profit. While revenue actually increased from the same quarter a year ago, profit fell.

As a result, this is the first quarter in nearly 10 years in which the company has reported a decline in earnings per share.

Analysts also pointed to a few key figures. The company says it expects revenue to remain flat in the next quarter, and gross margins to decrease to 36-37%. Such hedging from the company is unusual.

And while revenue beat market expectations, the company still had some bad news. Chief executive Tim Cook said on the company’s earnings call “we acknowledge that our growth rate has slowed”, blaming that decline on the “tremendous successes” from the past few years.

“Decline in stock price has been very frustrating to all of us,” he says. “The key to Apple’s strength is creating innovative products, and that is always in Apple’s control,” he continued.

Cook was also careful to stoke the anticipation for the second half of the year.

“I don’t want to be more specific, but we’ve got some really great stuff coming in the fall and across all of 2014,” he said. Such a confirmation means the company won’t be releasing any landmark devices at the World Wide Developers’ Conference in June.

The problem for Apple isn’t the company’s revenue or profit – both are healthy and the company maintains a solid $US145 billion in cash. Rather, the declining growth rate of both sales of specific products and market share is a worry.

For instance, sales of Mac computers declined 21% from the previous corresponding period. (Although iPhone sales are still strong, reaching 37 million, three million above expectations).

Telsyte research director Foad Fadaghi says it’s the pace of innovation which has given some competitors, such as Samsung, an opportunity to catch Apple defectors.

“There is more of an imperative for Apple to innovate,” he says. “We haven’t seen a lot of innovation in the past couple of years.”

“There has been a lot of incremental updates to the platform and product as well, but we haven’t actually seen a lot of innovation in new products.”

There has been growing speculation Apple plans to enter the wearable computing market, but so far no detailed evidence has yet appeared. Rumours of a television set have run dry in the past six months.

Meanwhile, Samsung’s market share has been increasing. Fadaghi says given the company is spending the most money on marketing, it makes sense the Galaxy smartphone range would be increasing market share.

“The products available on different platforms, are pretty competitive and are of equal quality and usability,” he says.

“Without that innovation, Apple risks on losing out.”

 

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