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Apple Searches Haystack for Product to Move the Needle

Apple Searches Haystack for Product to Move the Needle

Now that the prince has arrived, the world can return to waiting for Apple to give birth to its next exciting product. So far, it's been a long gestation, and CEO Tim Cook had little to say during the company's quarterly earnings call beyond his tiresome "we'll see." The clock is ticking. Apple may still be dominant, but it's not last year's market king.

By John P. Mello Jr. MacNewsWorld ECT News Network
07/24/13 10:31 AM PT

Apple's upcoming new products will be the key to the company's emergence from its current doldrums, CEO Tim Cook told analysts during its third-quarter earnings call Tuesday.

Asked by Piper Jaffray analyst Gene Munster if there were any product categories big enough to move the growth needle for Apple, Cook responded: "We'll see, Gene. We're working up some stuff that we're really proud of. We'll see how it does."

"We'll announce things when we're ready," he added.

During the session, Apple revealed that revenue for the quarter was flat compared with the same period a year ago -- US$35.3 billion in 2013 compared with $35 billion in 2012. Net profits were down -- $6.9 billion compared with $8.8 billion.

Earnings per share also slipped during the frame -- down to $7.47 from $9.32 a year ago -- as did a metric that's consistently separated Apple from all other players in its industry: gross margins, which sank to 36.9 percent compared with 42.8 percent in 2012.

The company announced that a cash dividend for stockholders of $3.05 per share would be paid in August.

Wearable Excitement

Concerns over growth and innovation at Apple have worried investors over the last year. The company's stock price has plummeted from a high of $705.07 to $438.41 at market close Tuesday.

The tally for the June quarter offered no balm for those concerns.

"The clearest thing to come from Apple's Q3 earnings was acknowledgment of flat growth," Patrick Moorhead, founder and principal analyst with Moor Insights and Strategy, told MacNewsWorld.

There are two ways Apple could satisfy Wall Street's insatiable appetite for big growth numbers, he suggested.

"Apple's products and brand are very strong, but Apple needs better distribution in emerging regions or a major product hit in a new category, like a wearable," said Moorhead.

Wearables could be a potential growth area for Apple, noted Gartner Research Vice President Carolina Milanesi.

"A product around wearables could become a hero product," she told MacNewsWorld. "It could get the excitement back in the brand."

Another possible area of growth: cars.

"I see it as very important. It is a part of the ecosystem," Cook said. "Having something in the automobile is very, very important. It's something people want, and I think Apple can do this in a unique way and better than anyone else, so it's a key focus for us."

Record iPhone Sales

A bright spot for Apple during the period was iPhone sales, which significantly outdistanced those in last year's June quarter -- 31.2 million compared with 26 million a year ago -- and set a new record for quarterly sales of the device.

"The sales from an iPhone perspective were actually higher than expectations," Milanesi said.

However, even good news was not unblemished, as the average selling price for the device dropped in the quarter.

Increased sales of older models of the iPhone -- which sell at a lower price than the most current model -- likely dragged down the average selling price for the entire product line, Milanesi explained.

It seems likely that iPhone sales growth could be hampered by saturation at the high end of the smartphone market. However, Cook offered a different perspective.

"I think we have lots of growth opportunities," he said, mentioning increased penetration of the enterprise, increased distribution through carrier relationships, and expansion of Apple's offline and online outlets as possibilities.

Market Dominance

For months, rumors have circulated about a mid-tier iPhone with a pricetag of $300 to $350, which could allow the company to expand its market reach. Such a move could have mixed consequences for Apple, though.

"Right now, sales of the older iPhone models aren't cannibalizing the iPhone 5 very much. They are expanding rather than cannibalizing the reach," Milanesi said.

"Having a brand new product that would come in at $300-$350 would cannibalize new iPhone models," she continued, "but more importantly, it would take away that flagship status of the new iPhones."

Good and bad numbers aside, the big picture -- not the one exhibited in a single quarter -- is what's important for Apple, and right now that picture is still pretty good, argued Rocco Pendola, director of social media for TheStreet.com.

"In the present, Apple is dominant and there's no question about it," he told MacNewsWorld.

That dominance can't always be seen in sales figures. For example, iPad sales were down for the June quarter -- 14.6 million compared with 17 million during the period a year ago. Yet, 84 percent of all traffic from tablets on the Web is generated from iPads.

"That's absolutely incredible," Cook said. "If there are lots of other tablets selling, I don't know what they're being used for."


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