\u00a0Apple Profit Up 38%, but iPhone Sales Disappoint Wall Street<\/strong><\/p>\n Even when Apple<\/a> jumps, investors wonder why the company can\u2019t jump a bit higher.<\/p>\n That was underscored on Tuesday when Apple<\/a> reported double-digit increases in sales and profit for its fiscal third quarter, a rate of growth that is highly unusual for a company of its size. Yet the results still fell short of estimates by Wall Street analysts, who are accustomed to Apple blowing past projections and had been predicting sky-high sales of iPhones and the company\u2019s brand-new Apple Watch.<\/p>\n In total, Apple reported a 38 percent increase in profit, to $10.7 billion, from a year ago, with revenue surging 33 percent to $49.6 billion. Sales of the company\u2019s biggest revenue and profit generator, the iPhone<\/a>, soared 35 percent to 47.5 million units.<\/p>\n \u201cThat\u2019s mind-boggling\u201d growth for a company that produces more than $200 billion in annual revenue and clocks in with a market capitalization of $753 billion, said Toni Sacconaghi, a financial analyst for Sanford C. Bernstein. \u201cThat said, everyone expected that and a little bit more.\u201d<\/p>\n The disconnect between market estimates and reality sent Apple\u2019s shares plunging in after-hours trading and highlights the expectations quandary that the company\u2019s success has created. The lingering question among investors is how long the company, based in Cupertino, Calif., can keep growing at double-digit rates before it begins to plateau.<\/p>\n IPhone sales faced some tough sequential comparisons. The 47.5 million units sold in the quarter was below the roughly 50 million that analysts had calculated Apple would sell, and was also down from the 40 percent growth in the previous quarter and the 46 percent growth two quarters earlier. Still, the rate of growth exceeded the 13 percent increase in the same period a year ago.<\/p>\n And while Apple did not share numbers on sales of the Apple Watch, which began selling in April, analysts on Tuesday calculated that the company had sold between 1.5 million and three million watches, far less than the three million to five million watches they had predicted ahead of Apple\u2019s earnings report.<\/p>\n Despite falling short of investors\u2019 expectations, Timothy D. Cook, Apple\u2019s chief executive, said the company had a strong quarter.<\/p>\n \u201cWe had an amazing quarter, with iPhone<\/a> 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,\u201d Mr. Cook said in a statement, adding that excitement for Apple Music<\/a>, its new streaming music service, was \u201cincredible.\u201d<\/p>\n For Apple, the jump in iPhone sales is noteworthy because the spring season tends to be when device sales slow down. Sales usually heat up between September and December, when consumers stock up on new devices for the back-to-school and holiday shopping seasons, and cool down afterward.<\/p>\n In response to questions about the perceived slowdown of iPhone growth, Mr. Cook said only 27 percent of iPhone customers had upgraded to the latest iPhone 6, indicating there was more room for sales as people trade up. He added that more people were also switching from mobile devices based on Google\u2019s Android mobile software to Apple devices than ever before.<\/p>\n \u201cFrom our point of view the iPhone is doing outstanding,\u201d he said.<\/p>\n Apple also reported $2.6 billion in revenue for a category it calls \u201cOther Products,\u201d which includes the Apple Watch<\/a>. Before the report, analysts had estimated that if revenue in the category exceeded $5 billion, it would be a sign that Apple had sold at least five million watches, much higher than the number of iPhones and iPads that were sold in their first quarters on the market.<\/p>\n That sales performance, they said, is a litmus test for whether Apple can continue successful product introductions since the death in 2011 of Steve Jobs, who drove the company to new heights with products like the iPhone and iPad<\/a>.<\/p>\n In an interview, Luca Maestri, Apple\u2019s chief financial officer, said the watch\u2019s sales in its first nine weeks exceeded those of the iPhone and iPad<\/a> in their first nine weeks of availability.<\/p>\n Yet analysts had to revise down their estimates for watch sales. Jan Dawson, an independent technology analyst for Jackdaw Research, calculated Apple had sold from two million to 2.5 million watches in the quarter, down from a previous prediction of five million.<\/p>\n Mr. Sacconaghi of Sanford C. Bernstein also estimated Apple had sold roughly two million watches, falling short of his forecast of three million. He said it was still too soon to tell whether the Apple Watch was a hit or a miss.<\/p>\n \u201cIt\u2019s way too early to render a verdict on the watch,\u201d he said. \u201cAll we can say is relative to expectations, whether those were misplaced or not, the watch was a disappointment this quarter.\u201d<\/p>\n In his earnings call, Mr. Cook said that he expected the watch would be a strong seller and among the top gifts of the holiday season.<\/p>\n Apple\u2019s sales in the quarter were fueled by overseas buyers, with international regions accounting for 64 percent of the quarter\u2019s overall revenue. Sales in the greater China region, one of Apple\u2019s prime growth areas<\/a>, more than doubled to $13.2 billion.<\/p>\n The company also reported healthy growth for its Macintosh computer business. Apple sold 4.8 million Macs, up 9 percent from a year ago.<\/p>\n Yet the iPad, which has experienced declining sales over the last year, continued to shrink. The company posted sales of 10.9 million iPads, down 18 percent from 13.3 million sold in the same quarter a year earlier.<\/p>\n Mr. Maestri said Apple remained confident about the prospects of the iPad. The next version of iOS, the company\u2019s mobile operating system, will add major new features to the tablet, like the ability to run two apps side by side. The company has also seen progress in its partnership with IBM to make iPad apps tailored for business, he added.<\/p>\n Besides, Apple has another ace in its pocket: $202.8 billion in cash, up from $164.5 billion a year ago.<\/p>\n You can also listen to last night’s conference call. Click here<\/strong><\/a>. You can read a transacript of the conference call. Click here.<\/strong><\/a><\/p>\n Totally wonderful:<\/p>\n
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\nHarry Newton, who played tennis at 6 this morning. A blessed hour with peace from obsessing with Apple madness. I do have another problem his morning. Last night when I walked Rosie (for her nightly ablutions), I opened the front door and a bird flew in. It’s now flying into our skylight in a desperate attempt to escape our clutches. I’m a city boy. I have no idea how to save a panicked bird. But then Apple doesn’t know how to save a panicked user (i.e. me) and unlock my Apple Watch app. My Apple Watch still tells time. For now. No wonder they didn’t sell as many as everyone thought (prayed?) they would. Who’s stupid enough to buy first generation technology? Oi veh!<\/p>\n