SAN FRANCISCO—Apple Inc. missed Wall Street’s revenue forecast for the third straight quarter after iPhone sales came in below expectations, fanning fears that its dominance of consumer electronics is slipping.
Shares of the world’s largest tech company fell 10 per cent to $ 463 in after-hours trade, wiping out some $ 50 billion of its market value—nearly equivalent to that of Hewlett-Packard and Dell combined.
Expectations heading into the results had been subdued by news of possible production cutbacks by some component suppliers in Asia, triggering fears that demand for the iPhone, which accounts for half of Apple’s revenue, and the iPad could be slowing.
But some investors clung to hopes for a repeat of years of historical outperformance, analysts said.
“It’s going to call into question Apple’s dominance in the space. It’s still one of the strong players, the others being Samsung and Google. It’s still a two-horse race, but Android continues to grow rapidly,” said Sterne Agee analyst Shaw Wu.
“If you step back a bit, it’s clear they shipped a lot of phones. But the problem is the high expectations that investors have. Apple’s conservative guidance highlights the concerns over production cuts coming out of Asia recently.”
“You can’t just keep rolling out iPhones and iPads and think that everybody needs a new one,” said Jeffrey Gundlach, who runs DoubleLine Capital LP, the $ 53 billion bond firm. “The mini? What is that all about? It is a slightly smaller iPad — so what? So that is our new definition of innovation?”
Intense competition from Samsung’s cheaper phones—powered by Google’s Android software—and signs that the premium smartphone market may be close to saturation in developed markets have also caused a lot of investor anxiety.
On the brighter side, Chief Financial Officer Peter Oppenheimer told Reuters that iPhone sales more than doubled in greater China—a region that Apple Chief Executive Tim Cook has vowed to focus on as its next big growth driver.
In an unusual move for Apple, which typically does not respond to speculation, Cook addressed the production cutback rumors at length on the conference call and questioned the accuracy of rumors about its plans.
“Even if a particular data point were factual, it would be impossible to accurately interpret the data point as to what it meant for our overall business, because the supply chain is very complex,” he said, adding that Apple has multiple sources for components.
“Yields might vary. Supplier performance can vary. The beginning inventory positions can vary. There’s just an inordinately long list of things that would make any single data point not a great proxy for what’s going on,” he said.
Apple’s initial iPhone and iPad mini sales were hurt by supply constraints, but Cook expects supply to balance demand for the iPad mini this quarter. He also acknowledged that iPad was cannibalizing its high-margin Macintosh computers, but said it was a huge opportunity for the company.
“On iPad in particular, we have the mother of all opportunities here, because the Windows market is much, much larger than the Mac market is,” he said. “And I think it is clear that it’s already cannibalizing some.”