The Lead: Apple's revenues return to gains, but stock volatile on profit worries
Apple broke its streak of declining revenues in the third quarter, but the Cupertino tech giant continued to see year-over-year declines in profits and predicted the same could happen in the all-important holiday-shopping quarter. Apple executives explained in a conference call that the cause of declining profit margins was the result of the company offering free software upgrades, and shares turned around from losses late Monday.
Without doubt, Apple is still a powerhouse in terms of generating revenues and profits through a wealth of iPhone and iPad sales, beating analysts' forecasts with its financial performance. In the third quarter, the final quarter of Apple's 2013 fiscal year, the company reaped net profits of $7.5 billion, or $8.26 a share, on revenues of $37.5 billion, while analysts on average predicted earnings of $7.94 a share on sales of $36.8 billion, according to Thomson Reuters.
Record September-quarter iPhone sales were a big reason: Apple sold 33.8 million smartphones thanks to a record-breaking debut weekend for the iPhone 5S and 5C at the end of the three-month period.
"We're pleased to report a strong finish to an amazing year with record fourth quarter revenue, including sales of almost 34 million iPhones," CEO Tim Cook said in Monday's news release.
Investors reacted sourly to the report, however, initially sending shares down roughly 3 percent after a 0.7 percent gain to $529.88 in the regular session. Apple's profits appeared to be a concern: While Apple's revenues gained year-over-year after two quarters of declines, profits failed to live up to the previous year's accomplishments for a third straight quarter thanks to a declining profit margin, and Apple seemed to predict the same result in the current quarter.
While Apple does not provide guidance on profits, the company predicted record-breaking revenues of $55 billion to $58 billion would be accompanied by a gross profit margin of 36.5 percent to 37.5 percent, a decrease from last holiday season's 38.6 percent that suggests profits will fall unless revenues massively overtake last year's $54.5 billion.
Investors "are a little concerned about the gross margin outlook for the December quarter," ISI Group analyst Brian Marshall told USA Today.
However, Chief Financial Officer Peter Oppenheimer told analysts in Monday's conference call that Apple's gross margin was affected by its recent decision to offer software updates for free, a move popular with users that forced Apple to defer some revenues from hardware sales to account for software revenues. With Cook projecting confidence in upcoming new products -- "we obviously believe that we can use our skills in building other great products that are in categories that represent areas where we do not participate today" -- and holiday iPad sales, deeming it "an iPad Christmas," shares rebounded to a slight gain in late trading.
Apple stock has fallen from peaks of more than $700 reached in 2012 and is near break-even on the year, but significant gains are unlikely without juking the share count, as activist investor Carl Icahn suggests, or exhibiting a stronger growth curve in profits and revenues.
"People aren't going to be excited until they see a definitive return to growth," Hudson Square Research analyst Daniel Ernst told Bloomberg News.
SV150 market report: Market stagnant as Netflix, Facebook and Tesla fall
Wall Street moved very little Monday, but some signature Silicon Valley stocks struggled, sending the SV150 to a slight decrease on the day.
Tesla Motors (TSLA) suffered a 4 percent decline to $162.86 after a second video showing a Model S aflame burned itself into the Internet's psyche, with the latest showing the aftermath of a traffic collision in Mexico. The Palo Alto electric car maker also saw its stock decline after a similar incident in Washington state earlier this month, though the most recent fire seemed to be from a more dramatic collision, with Tesla saying that the car tore through a concrete wall before ramming into a tree. The driver "is appreciative of the safety and performance of the car and has asked if we can expedite delivery of his next Model S," Tesla said in a statement. The news wasn't all bad for Tesla: The company delivered its first Model S to China, part of a long-term plan to generate revenues in the world's most populous country, and finally received an official recommendation by Consumer Reports.
Netflix (NFLX) fell 4.3 percent to $314 despite signing a deal to show all eight seasons of the Showtime television series "Dexter," as executive Ted Sarandos publicly declared the Los Gatos video-on-demand company's intentions to wade into big-money film production.
Facebook fell 3.3 percent to $50.23 while facing a Forrester report that denigrated the Menlo Park social network's ability to drive revenue for advertisers, with some concerned about the company's Wednesday earnings report.
Google held steady, losing only 20 cents to $1.015, after a judge approved the Mountain View search giant's legal settlement with shareholders that should clear its path to a stock split that will halve Google's per-share cost; after the trading session closed, Google announced that it has an updated Glass product and is opening up the product to more users.
LinkedIn gained 1 percent to $243 ahead of its earnings report on Tuesday, when fellow Silicon Valley titans Gilead (down 1.4 percent to $68.73), Yelp (down 0.6 percent to $67.59) and Electronic Arts (ERTS) (up 0.3 percent to $32.35) will also detail their financial performances.
The SV150 index of Silicon Valley's largest tech companies: Down 0.73, or 0.05 percent, to 1,400.43
The tech-heavy Nasdaq composite index: Down 3.23, or 0.08 percent, to 3,940.13
The blue chip Dow Jones industrial average: Down 1.35, or 0.01 percent, to 15,568.93
And the widely watched Standard & Poor's 500 index: Up 2.34, or 0.13 percent, to 1,762.11
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.