Apple Profits Fall, But Exceed Analysts' Expectations

Jul 27, 2013
Originally published on July 24, 2013 3:04 pm

Apple’s stock prices rose in the third quarter, even as profits lagged.

Sales of its iPhone performed well, but overall product sales in China fell 14 percent compared to this time last year.


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From NPR and WBUR Boston, I'm Jeremy Hobson. It's HERE AND NOW.

Investors are reacting positively today to Apple's earnings. They were released after Wall Street closed yesterday. Profits were down compared with a year ago, but iPhone sales were up. Joining us now with the details is Derek Thompson, business editor at The Atlantic. Welcome back, Derek.

DEREK THOMPSON: Hi, Jeremy. Good to be here.

HOBSON: So where did Apple do well, and where are they lagging right now?

THOMPSON: Let's start with the good news. Apple made $7 billion in three months. That's pretty good. And they sold 31,000 iPhones, that's pretty good too. And for any other company, it would be great. But for Apple, it's only OK and the reason it's only OK is this: The revenue is flat compared with last year. The profit margins are down. iPad revenue fell 27 percent compared with a year ago and the Chinese market, which should be booming, is shrinking instead. And so all these are worrying signs for the future of the company.

HOBSON: Well, let's talk about China. I know that they have gone towards selling a cheaper smartphone for the Chinese consumers. Is that going to work? Is that going to keep people in China from buying, say, Samsung phones?

THOMPSON: Well, you know, Apple's future, in large part, depends on Asian families buying smartphones. And there's a theory out there that most of the people who can afford an iPhone at the current price already have one. So the company's rumored to be developing a cheaper iPhone for precisely this market.

There's two things about that. You know, first, if they sell more iPhones for less money, profit margins will fall and investors aren't crazy about declining profit. The second thing is, this is sort of a good place, I think, to compare Tim Cook's Apple with Steve Jobs' Apple. Jobs created markets. He created the iPod market, created the iPhone market, created the iPad market. Tim Cook isn't really creating markets. He's managing market share and that's what this plan is. It's a market-share plan, and I think investors see this, somewhat rightly, as a defensive move of a company that's running out of magical tricks.

HOBSON: The other thing that Steve Jobs did, by the way - and I've heard people who worked with him talk about this - is that he saw the life cycle of a product. He said, at this point, we're going to come out with the iMac. And a year later, we're going to come out with it in different colors. And a year later, we'll come out with it with this feature. So it really had a lasting effect. Is that gone, do you think, with Tim Cook?

THOMPSON: I think there's definitely a sense that the magic is gone somehow. It's just - it's very, very difficult to repeat what Steve Jobs did in those 10 years. I mean, he went on a run that is basically unprecedented in terms of his ability to create incredible machines that people around the world wanted to buy, that reinvented categories like phones and tablets that people didn't think could be changed so incredibly. And so, you know, to keep up with that pace would be a difficult challenge for any company.

And right now, I think, you know, the reason that Apple's stock has fallen by 40 percent in the last nine or 12 months is that investors and expectations just got ahead of reality and got ahead of where the company could actually manage those expectations.

HOBSON: And we just spoke with Pete Cashmore from the tech website Mashable yesterday, who said that Samsung is now the dominant player in smartphones. Derek, I want to ask you about when we're going to get a new product from Apple. That's what everybody is waiting for. Maybe it's the iWatch or something else. But when is something really innovative going to come?

THOMPSON: Right. You know, it could come this fall. It could come sometime early next spring. And I think the two most likely candidates for an exciting - a new Apple device is either a smart watch or a smart TV. You know, TVs right now are a pretty low-margin business, and watches are sort of crazy business. So I don't know which of those things is going to really catch on. But it does appear to me that Apple seems to be running out of screens. You know, you've got smart watches, OK, smart TVs.


THOMPSON: You know, what's really next? They've trained investors to think they can make magic every five years, and I think the pixie dust is running out.

HOBSON: Derek Thompson, business editor at The Atlantic, thanks as always.

THOMPSON: Thank you.

HOBSON: And we'll be back in one minute. HERE AND NOW. Transcript provided by NPR, Copyright NPR.