Apple blames iPhone rumors for disappointing results

It was Apple8217;s first quarterly earnings under Chief Executive Tim Cook,who took over from Steve Jobs in August at a critical juncture for the company. Apple is battling Google Inc in the mobile arena,as well as other challengers such as Samsung and Amazon.com Inc.

Investors are going to start to speculate that there is change underway now that Jobs is gone,and that there8217;s trouble ahead. We don8217;t share that point,said Channing Smith,co-manager at Capital Advisors Growth Fund.

The iPhone is where the weakness was and it8217;s an explainable one. The strong demand for the iPhone 4S set up strong demand for the holiday season.

Apple said it sold 17.07 million iPhones in its fiscal fourth quarter ended Sept. 24 8212; well short of the roughly 20 million forecast by analysts. The iPhone is Apple8217;s flagship product,yielding some 40 percent of annual sales.

Revenue rose 39 percent to 28.27 billion,lower than the average analyst estimate of 29.69 billion,according to Thomson Reuters I/B/E/S. It was the first time Apple missed revenue expectations since the fiscal fourth quarter of 2008.

Net profit was 6.62 billion,or 7.05 a share. That fell shy of expectations for earnings of 7.39 per share. The last time Apple missed EPS estimates was in the first quarter of 2001,according to Thomson Reuters I/B/E/S.

Expectations for this company were red-hot,that is why we downgraded it,said BGC Partners analyst Colin Gillis,who lowered his rating on the shares days before. The reality is their business is not an annuity. They have to sell their quarter8217;s worth of revenue every 90 days.

They had a big upgrade cycle with the iPhone,the numbers came in weak. They need to set records every time they report to keep up the momentum.

Apple executives said consumers had postponed purchase decisions until the crucial holiday quarter because of speculation that a new phone was on the way. Apple unveiled the iPhone 4S in early October,and it hit stores last Friday.

Apple 8212; which typically offers projections so conservative they are disregarded 8212; on Tuesday forecast December quarter revenue and earnings above Wall Street8217;s estimates.

There8217;s no question this was a transition quarter ahead of the 4S,said WP Stewart portfolio manager Michael Walker. With the early pace of iPhone 4S sales,my guess is that disappointment is relatively short-lived.

I8217;m not going to call Q3 a throwaway quarter for iPhones,but it was definitely a transition.

A PERIOD OF TRANSITION

Cook started his first earnings conference call as CEO by honoring Jobs,who died on Oct. 5 after a years-long battle against pancreatic cancer.

He said he was very confident of posting record iPhone sales in the current quarter. The company moved 4 million iPhone 4S units 8212; more than double its predecessor 8212; in its first three days,despite lukewarm reviews.

A large spike in sales of Mac computers during the September quarter failed to lift earnings. Apple sold 4.89 million Macs,up 27 percent from a year ago. And it moved 11.12 million iPads.

Gross margin came to 40.3 percent 8212; a tad higher than Wall Street8217;s forecast of 39.74 percent. International sales accounted for 63 percent of the quarter8217;s revenue.

We expected iPhone sales to decline in the September quarter from the June quarter as a result of the announcements we made 8230; in June,where we said we would launch iOS 5 and iCloud in fall,Peter Oppenheimer,Chief Financial Officer,said in an interview with Reuters.

That basically created the rumor of the day across the September quarter,especially at the end.

Apple said it expected December quarter earnings of 9.30 a share on revenue of about 37 billion. Wall Street is projecting 9.01 for the period,but it was unclear if that was comparable.

What is interesting is the guidance is less conservative than usual for their next quarter. It8217;s a timing issue,where it looks like the business that people thought would be in the September quarter is occurring in the December quarter,said Sterne Agee analyst Shaw Wu.

One of the things obviously is the iPhone 4S just started shipping a few days ago.

Apple shares fell to 394.78 in after-hours trading,after closing at 422.24 on the Nasdaq.