An Opportunity to Take a Bite
Ashish is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Apple (NASDAQ: AAPL) reported weak 2Q12 earnings with consolidated revenue and EPS of $35 billion and $9.32 vs. Consensus estimates of $37.3 billion and $10.35 respectively. The slowdown could mainly be attributed to a slump in iPhone sales ahead of the refresh as expected (See: Apple’s Consolidation Provides a Good Buying Opportunity), lower iPhone Average Selling Prices, softer Macs and tough Macro conditions. Despite the weak quarter we remain positive on Apple's growth potential as we wait for the Mac refreshes to gain traction and the launch of iPhone 5, the biggest in consumer electronics history.
1) iPhone: iPhone unit sales were 26 million, growing 28.3% YoY while declining 26% QoQ. ASP’s for iPhones were down 5% both YoY and QoQ due to higher overall sales of low priced models and the strong USD. The US showed a high growth rate of 47% YoY while weakness came from flat sales in Europe.
2) iPad: The iPad performed better than expectations as it generated a total revenue of $9.2 billion growing 52% YoY and 39% QoQ. iPad total unit sales clocked in at 17 million up 84% YoY and 44% QoQ. The ASP’s for the iPad declined in 2Q due to a higher mix of low priced iPad 2 sales in the K-12 Market.
3) Mac: 2Q saw 4 million Mac unit sales with a 2% YoY growth rate and flat QoQ growth. Mac sales were impacted a little as a new product was announced with only 3 weeks left in Q2.
4) iPod: iPod sales generated revenues of $1 billion, a decline of 10% YoY and 12% QoQ. iPod touch units constituted around half of the total 6.8 million iPod units sold.
5) iTunes: iTunes generated revenues of ~$1.8 billion. Apple launched iTunes stores in 12 new countries including HK, Singapore and Taiwan last month.
Apple delivered strong iPad results with units totalling 17 million. The iPad's strength was driven by the high demand for the new iPad which was refreshed in March. Another factor for the growth of iPad was the price reduction on iPad 2 at the $399 entry pricing. We believe that the recent launch of new iPad in Mainland China and back-to-school selling will drive QoQ growth into September. A major disappointment in Q2 was the sale of iPhone which declined 26% QoQ waiting for the launch of iPhone 5.
We expect iPhone sales to further slowdown in the next quarter as well. We believe that despite these short term pressures the launch of iPhone 5 will likely offset these weaknesses as we still expect it to be the biggest product launch in consumer electronics' history. The iPhone represented 46% of sales for Apple in Q2 and has been a great stock mover in the past. So far Apple has got it right when we see the iPhone's previous releases and with this release being the last from Steve Jobs, Apple surely has a great opportunity to make it worthwhile. We believe that Apple will also benefit from the refresh cycle for Mac and iPad in the 2H. We see significant catalysts remaining for the rest of the year, namely an iTV or iPad mini announcement in 2H with availability in Q4.
Apple faces some pressure in the iPad market into 2H with the coming launch of Microsoft’s (NASDAQ: MSFT) Windows 8 Tablets. Although we are bullish about the success of Windows 8 (See: Microsoft: Better Than Expected Q4 Earnings- Buy and Microsoft’s Outperformance: You Ain’t Seen Nothing Yet) we believe that these two can coexist in the market. We believe that Windows 8 tablet will more likely eat into the market share of Google's (NASDAQ: GOOG) Android tablets given the premium position of Apple iPad and the loyal user base. The success of Apple's new iPad in China could add incremental iPad sales in the 2H and might offset the pressure due to a weak iPhone in Q3. We remain bullish towards Apple's success with the launch of iPhone5 in 2H and view the near-term weakness associated with this quarter as an opportunity to buy Apple at an attractive valuation.
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