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Apple stock slips after 'rare miss' on earnings

Overoptimism by analysts failed to account for savvy consumers awaiting the latest iPhone, says a J.P. Morgan analyst, who has actually raised his estimates for the current quarter.

Apple Store, Emeryville, Calif., as people line up to buy the iPhone 4S.
At daybreak on October 14, shoppers gather at the Apple Store in Emeryville, Calif., to be among the first to buy the iPhone 4S.
James Martin/CNET

Apple's fourth quarter disappointed Wall Street, but J.P. Morgan analyst Mark Moskowitz believes iPhone sales were hurt simply by customers waiting to pick up the newest version.

For the quarter, Apple took home sales of $28.27 billion and earnings of $6.62 billion, or $7.02 per share. Those figures were up from sales of $20.34 billion and earnings per share of $4.64 a year ago. But the earnings came in 27 cents lower than the average estimate by analysts surveyed by Thompson Financial.

Apple's failure to meet earnings estimates was the first time that has happened since September 2004.

In a hangover effect this morning, Apple's shares were down about 5 percent in the first hour of trading on the Nasdaq, to around $400 even. And that's essentially how they ended the day, down $23.62, or 5.6 percent, to close at $398.62

iPhone sales in particular missed the mark for the quarter just ended. Apple sold 17.1 million units of its flagship phone. That figure showed a 21 percent jump over the year-ago quarter but failed to reach J.P. Morgan's forecast of 20.6 million or the Wall Street consensus of around 19 million.

However, Apple intimated that iPhone sales for the quarter ended September 24 suffered because consumers delayed their purchases in anticipation of the new iPhone, an explanation that Moskowitz shares.

"Our view is that we underestimated the smarts and awareness of the consumer," Moskowitz wrote in a research note released today, adding that he believes the December quarter will set an "all-time record" for iPhone sales, boosting Wall Street estimates.

Apple unveiled its iPhone 4S in a highly anticipated event in early October, and the phone went on sale October 14. In its first weekend, the iPhone 4S set a record with 4 million units sold.

Looking beyond the iPhone, sales of other Apple devices beat expectations.

The company sold 11.1 million iPads, just above J.P. Morgan's forecast of 10.9 million and Wall Street estimates of 11 million. Apple said that the tug of war between supply and demand finally came into balance around the middle of the quarter, noted Moskowitz, and that it expects iPad shipments to see an "all-time" record in the December quarter.

Mac unit sales hit 4.9 million for the quarter, above J.P. Morgan's estimates of 4.2 million and the Street's consensus of 4.4 million. The PC market may be getting hit by cannibalization from tablets, but Apple is proving somewhat immune to that effect, according to the analyst.

"Tablets may be hurting the broader PC market, but in our view, Apple's product family is constructing the digital hub for the end user whether via the Mac, iPhone, or iPad," Moskowitz wrote.

Anticipating strong growth ahead, J.P. Morgan has raised its sales and earnings estimates for the current quarter ending December. The firm is now eyeing sales of $139.3 billion, up from the previous forecast of $123.6 billion, and earnings of $34.71 per share, up from $29.59 previously.

Moskowitz remains positive on the company.

"We think the rare miss is explainable and provides an entry point for opportunistic investors," he said. "In our view, heightened consumer awareness driving the momentary pause affirms that Apple has cemented a digital way of life for consumers.

Updated 7:34 a.m. PT and 1:41 p.m. PT: Added information on Apple's stock movement.