Get ready for Apple’s first quarter of negative income growth since 2003

“The bad news is that every analyst we’ve surveyed — even the most bullish — believes that for the first time in a decade Apple (AAPL) will report that its income this quarter was lower than the same quarter the year before,” Philip Elmer-DeWitt reports for Fortune.

“According to Thomson Financial, the consensus EPS for fiscal Q2 2013 on Friday was $10.18, down from $12.30 in Q2 2012,” P.E.D. reports. “The analysts we’ve heard from so far are even more pessimistic. Their estimates range from a low of $9.23 to a high of $10.39 for a mean EPS of $9.85.

P.E.D. reports, “The good news for investors is that Wall Street seems to have already priced this negative income growth into the stock. Judging from the performance of Apple’s shares since early March, the smart money has been pouring back into the company for the past three weeks.”

Read more in the full article here.

Robert Paul Leitao writes for Posts at Eventide, “Since FQ3 2012, Apple’s rate of year-over-year earnings per share growth has fallen below the rate of revenue growth. This trend will continue through the March quarter due to the extraordinary high gross margin achieved in the first half of last fiscal year.”

“It’s not a coincidence Apple’s gross margin reached extraordinary high levels in the first six months following the release of the iPhone 4S,” Leitao writes. “he iPhone 4S is the second handset in the iPhone 4 series and delivered record gross margin due in part to Apple’s ability to apply the fixed costs of iPhone 4 series production over a much larger number of units sold.”

Leitao writes, “Looking forward, Apple’s gross margin performance will improve following the release of the second iPhone 5 series handset.”

Tons more in the full article – recommended – here.

[Thanks to MacDailyNews Reader “Dan K.” for the heads up.]

36 Comments

      1. apple just has to sell the iphone for less $$$ to get people to buy it more often

        at this point almost everyone who wants an iphone or a galaxy has one so its no surprise that income growth is going to go negative. almost no one left to sell to

        1. Anyone who can do some basic math can figure out that the replacement cycle and early termination don’t really mean anything. Here’s how.

          A new current-model iPhone costs $650 (basic version). Subsidised iPhone is $200 on all major carriers. If you are less than two years into your contract, you are usually asked to pay some $450 for the new iPhone.

          Last year’s model of the iPhone usually goes for around $400 on eBay. If you have the 4S and want to get the 5 now (before you become eligible for the new full subsidy), you’ll have to pay $450 to get it, but you’ll be able to recover almost all of it by selling the 4S.

          If you have a two-year old phone and are out of contract (in our example, an iPhone 4), you can still unload it for about $200, which will cover the upfront payment for the new model.

          The bottom line is that no matter when you bail out of your contract, you will most likely break even and end up with a newest model iPhone, as long as you know your way around eBay and don’t mind spending some time doing it.

          1. that’s replacement revenue, the pool of potential new customers is not so much

            for apple stock to grow, they have to grow revenues and profits. selling replacement iphones won’t grow either. doesn’t matter how much subsidy the end user gets

            1. I must have misunderstood the point of your prior message. I thought you suggested that Apple should sell replacement phones faster (i.e. people have to wait two years in order to upgrade).

              Smartphone market penetration is fairly decent in the developed world, so yes, growth simply has to slow down there. Consequently, iPhone penetration is as strong, and switching Android users doesn’t leave much long-term potential either (after all, this ain’t Mac — Windows game).

              The only way for Apple to grow iPhone is to penetrate China. One thing that would also allow for somewhat larger market share would be something that Apple will never do — lower the price (and thus margins).

              For Apple to continue to grow profit aggressively, they would simply need to tap into the next unconquered market. Whether it is wrist watch, TV or something else, I don’t know. The existing ones (phones, tablets) are already saturated for long-term growth.

        2. Selling the phone for less requires Apple to take a hit on their profit margins. That’s just bad business. The smart money for growth is to release an iPhone that uses components from older models that have come down in price now to allow them to sell them for a similar profit percentage, but bring the price down. Unfortunately, this will still cost them in the US, as cheap people will buy whatever is cheapest, not whatever is best. There will be new customers, but there will also be people that “downgrade” the next time they get the opportunity to get a new phone.

          Sadly, there’s no way to know just how much a cheaper iPhone will affect Apple’s bottom line without releasing one. I imagine that we’ll find out soon enough.

      1. Unfortunately, auren, this is *not* the first time that this type of comment has been posted on MDN…not by a long shot. There are several people on this forum who intentionally attempt to offend others. They generally don’t succeed because we know their opinions are not worth taking seriously. But they are mildly annoying at times.

    1. Sdfg your the perfect example of the problem with the Internet today, Some individuals just don’t know how to act while using electronic devices.

      I bet that if challenged face to face by any individual, you would cower in fear, and beg to be left alone while pissing yourself.

      As trolls go, your entertainment value is null, But you do have one redeeming feature, your a Poster Child example of what not to be like while on the Internet.

  1. We shall see.

    Personally, I think supply constraints hurt Apple last quarter and with those being resolved we’ll see a better than expected report even with less friendly margins. Won’t matter, though, because Apple isn’t judged like other companies. It’s dying unless it’s announcing a ‘revolutionary’ product every two years.

    Just keep doing what you do, Apple. In the long run it’s going to be better than any of the other guys.

    1. I really just don’t get it. Apple has all that cash on hand and they honestly can’t figure a way to pound rivals into the dust. To me, it just seems downright unbelievable. One can probably compare it to developing a hydrogen bomb and then not having the common sense to drop it on one’s enemy or at least threaten them with it to keep them in check. Microsoft would never have had a problem making that choice. Apple must not know it’s fighting for its personal respect each and every quarter as its P/E rapidly shrinks.

      I might be wrong, but is it really that hard to throw some free offers of iTunes discounts around for potential Apple product purchasers. I mean, just give them something for incentive if they’re not going to give iPhone salespeople spiffs or whatever. What the hell is the point of having a ginormous cash hoard if you’re not going to do a damn thing with it? It just seems like Apple has zero advantage over rivals or is fighting rivals with one hand tied behind its back.

      It’s plain to see that Apple is not being judged like other companies. No other company is being expected to come out with some revolutionary new product every other year. That’s like asking a pharmaceutical company to introduce some wonder drug to cure an illness every couple of years. It’s not good enough that Apple sells a drug to keep the common cold in check. The company only has worthwhile value if it produces cures for senility, old age and impotence. Apple needs to do something to put totally unreasonable Wall Street in its place. They’re just asking too much of Apple and Apple shareholders.

      That’s why I feel Apple has to use that cash to drop the hydrogen bomb on competitor companies. There’s no conceivable way Google or Samsung should have Wall Street’s respect over Apple. No way at all. Apple’s cash and profits should be a hydrogen bomb, a GAU-8 and Sarin gas all rolled into one big weapon warning Wall Street and rivals to stop trying to mind-f*ck Apple.

  2. The supply chain genius is driving the boat til the next evolution. The echo boom of the iPhone 4S -> 5GS upgrade will be huge – none of the apple faithful are on the 5 because of the upgrade cycle and rejiggering of contracts at AT&T making it cost $800 to upgrade.

    Until this happens, it may just be time to buy up a lot of AAPL during the PAIN.

  3. This is actually good news. Together with simple tweaking of lackluster products, the decline in the actual numbers means the days are counting down before the departure of Tim Cook. Now that the blind and mindless don’t have growing earnings, record numbers, etc., to tout, what are you going to do now? Hmmmmmm?

  4. I believe they are confusing the REALLY badly timed up grade of EVERYTHING prior to Christmas and the end of the year with the 1st quarter of this year. All of what you could not get and would suffer the backorders of and the delayed gifts were sold this quarter. This is the first full quarter that you could buy the iPad mini and the new iMac. Do you really think the sales are lower as everyone else’s sales are collapsing. Even Samsung can’t hold Apple sales back in markets that Apple is in. The deal with 67% of China’s mobile market isn’t even made public yet (but will be). Apple stated that China will be a bigger market than the USA for Apple.

    It is not where a stock is but where it is going that sets the price of the stock.

    1. I understand what you think. But one thing is sure that apple won’t be successful in Chinese market. Just look what the average monthly income over there. Most people can’t afford to buy it. Plus, people are smart. There are lots if cheaper and high quality smartphones in their market. People just buy them instead of freaking expensive apple products.

      1. Thanks for the warning Ed. But be sure to warn BMW and Ferrari too. Those fools think they’ve been seeing double digit growth in China sales for the past decade.

  5. Theres’ nothing wrong at Apple. It’s all Wall Street analysts fear-mongering and those who believe it. The only wrong thing somewhat related to Apple is Wall Street.

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