Apple Earnings Clouded as Some Wanted More From iPhone

Apple Inc. (NASDAQ: AAPL) is now the largest and most profitable company out there. The company’s third-quarter earnings report has now been released. Apple generated revenue of $49.6 billion in the quarter, followed by net profit of $10.7 billion, or $1.85 per share.

Thomson Reuters had a consensus of $1.81 EPS and $49.3 billion in revenue. The report compares to $37.4 billion in revenue and net profit of $7.7 billion, or $1.28 per diluted share, a year ago.

Apple is nearing $200 billion in cash and investments. The company’s balance sheet showed that long-term marketable securities were $168.145 billion, with cash of $15.319 billion and short-term securities of $19.384 billion.

Apple noted that its gross margin was 39.7% versus 39.4% in the year-ago quarter. Another issue is that Apple’s international sales accounted for 64 percent of the quarter’s revenue. Growth in the third quarter was from record third quarter sales of iPhone and Mac sales, as well as the launch of the Apple Watch.

The iPhone units shipped were 47.53 million, which just barely beat what CNBC was a consensus of 47.3 million iPhone units expected. That accounted for $31.368 billion in revenues. Unfortunately, that means some analysts are going to be disappointed with the unit count of iPhones.

iPad units were 10.93 million, accounting for $4.538 billion in revenue. Mac units were 4.796 million, accounting for 6.03 million units. The so-called Other Products generated $2.641 billion in revenue. This included deferrals and amortization of related non-software services and software upgrade rights, and it included sales of Apple TV, Apple Watch, Beats Electronics, iPod and Apple-branded and third-party accessories. Apple Services generated $5.028 billion in revenue. This included revenue from iTunes, AppleCare, Apple Pay, licensing and other services.

Apple’s guidance for its fiscal 2015 fourth quarter is for revenue to be between $49 billion and $51 billion, while the Thomson Reuters consensus was $51.05 billion. Other guidance was for gross margin between 38.5 percent and 39.5 percent and operating expenses between $5.85 billion and $5.95 billion. Apple’s tax rate is projected to be 26.3%.

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Apple CEO Tim Cook said:

We had an amazing quarter, with iPhone revenue up 59 percent over last year, strong sales of Mac, all-time record revenue from services, driven by the App Store, and a great start for Apple Watch. The excitement for Apple Music has been incredible, and we’re looking forward to releasing iOS 9, OS X El Capitan and watchOS 2 to customers in the fall.

Luca Maestri, Apple’s CFO, said:

In the third quarter our year-over-year growth rate accelerated from the first half of fiscal 2015, with revenue up 33 percent and earnings per share up 45 percent. We generated very strong operating cash flow of $15 billion, and we returned over $13 billion to shareholders through our capital return program.

Apple shares are reacting in part to guidance and in part to the iPhone unit count not meeting some of the more aggressive expectations. Shares closed down 15 at $130.75 on Tuesday, but the stock was down 7.7% at $120.70 in the after-hours reaction.

Apple has a 52-week range of $93.02 to $134.54 and a consensus analyst price target of $149.28 as of now.