SAN FRANCISCO (MarketWatch) - Apple Inc. managed to get a lift from its third fiscal quarter results on Tuesday despite a sharp drop in earnings for the period, as sales of the iPhone came in ahead of investors' downbeat expectations.
That was enough to raise Apple's downtrodden stock by more than 3.8% in after-hours trades - even though the company's revenue forecast for the current quarter fell shy of expectations, with no predicted improvement in gross margins.
Also, several analysts noted that iPhone shipments were clearly helped by price discounting and demand for lower end devices. Apple itself said the average selling price, or ASP, of the iPhone was down $32 from the March period. The company shipped 31.2 million iPhones in the quarter; analysts had predicted a range of 26 million to 27 million iPhones shipped, on average.
"I was surprised at how good the iPhone volume was, until I saw the ASP," Peter Misek of Jefferies & Co. told MarketWatch. He said the trends on the price show that Apple's execution in the low end of the smartphone market has improved. "As they lower price, they have elasticity."
Promotions of the iPhone likely helped boost the sales number for the quarter, according to Mike Walkley of Canaccord Genuity. He told MarketWatch that the lower average selling price for the smartphone indicates "that iPhone is still an aspirational product among consumers."
The iPhone remains Apple's most important product line, accounting for more than half the company's overall revenue for the June quarter. On the conference call with investors, CEO Tim Cook said the older iPhone 4 - which has been on the market more than three years now - continues to sell well to first-time smartphone buyers.
Apple's earnings beat estimates
Apple shares jumped in after-hours trading after the company reported third-quarter earnings that beat Wall Street's estimates thanks to stronger-than-expected iPhone sales. MarketWatch's Dan Gallagher reports.
"We want to attract as many of these buyers as we can," he said, adding that he disputes the belief among many analysts that the higher end of the smartphone market has become saturated. "I don't believe that," he said.
For the period ended June 29, Apple reported net income of $6.9 billion, or $7.47 per share, compared with net income of $8.8 billion, or $9.32 per share, for the same period last year.
Revenues grew slightly to $35.3 billion. Gross margin came in at 36.9% for the fiscal third quarter. Total cash at the end of the quarter was more than $146 billion.
Analysts were expecting earnings of $7.31 per share on revenue of $35 billion, according to consensus forecasts from FactSet.
Shipments of the iPad totaled 14.6 million units - falling short of the 17 million-to-18 million range predicted by analysts. Mac shipments totaled 3.8 million units.
For the September period, Apple projected revenue in the range of $34 billion to $37 billion. Analysts were looking for revenue of $37.1 billion for the period, according to FactSet.
The company also projected a gross margin range of 36% to 37% for the period. Analysts have been expecting the launch of a new iPhone in late September, though many have been trimming their forecasts for the quarter over the last month.
Quizzed about the outlook on the call, Cook and CFO Peter Oppenheimer refused to provide details of up-coming product launches. The company is widely expected to launch the iPhone 5S as well as a lower-cost iPhone later this year for emerging markets, along with new models of the iPad.
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