Apple EPS $1.85 v $1.81 But Shares Fall 8%

Apple disappointed markets on Tuesday, much to their dismay. The release of Apple earnings along with sales of the Apple Watch were expected to be the market highlights duplicating the response last week after Google released its quarterly earnings.  Apple shares dropped 8% despite iPhone demand. iPhone sales may be up, but Apple stock is decidedly down after it reported fiscal third-quarter results that included a tepid financial outlook.

Apple earned $31 billion selling iPhones in the quarter — which, due to its place in the life cycle of the profit, is not traditionally that strong a quarter — representing a staggering 59 percent increase on the previous year. In terms of units, sales went up “only” 35 percent, which is extremely impressive on its own merits. Basically Apple succeeded in getting many more people to buy iPhones, while also increasing the average price of the phones sold. For some reason traders were disappointed, perhaps they were expecting miracles. 

That would be a notable achievement under any circumstances, but it’s doubly impressive because the iPhone was already an extremely popular product a year ago and already occupied the high end of the smartphone niche. The iPhone is so huge that it accounts for more than 60 percent of the revenue of the biggest company on the planet. Apple did not release exact figures of iPhone sales, holding that data to keep competitors on edge.

Apple’s total revenue was up 33 percent year on year, which is impressive. And the big driving force behind that 33 percent increase was a mind-blowing 112 percent increase in revenue deriving from Greater China, of which the People’s Republic of China is far and away the largest part. This was a bit worrisome for investors as the Chinese domestic economy is beginning to show weakness which might in turn effect Apple’s Chinese growth.

Talk about greed, Apple shares tumbled 1% after the release of earning per share. Markets had forecast an incredible $1.81 return while the actual was $1.85. Apple’s cash pile broke above $200 billion for the first time ever, hitting $203 billion. That is up 5 percent from the prior quarter, and up 23 percent from last year. $181 billion of that cash hoard was international, the company said.

Disappointing earnings from several big US companies put Wall Street investors in a selling mood, giving the stock market its first decline in four days. In other earnings reports this week, Microsoft and IBM also disappointed but for other reasons. IBM and United Technologies were among the companies whose latest quarterly report cards fell short of Wall Street’s expectations or included dimmer outlooks. Telecommunications stocks were among the biggest decliners.

Traders have been focusing on the health of Corporate America to get a read on how the global economy is doing, though it is still early days. Only about 12% of the companies in S&P 500 index have reported earnings so far. The Dow Jones slumped 181.12 points, or 1%, to 17,919.29. The S&P 500 index lost 9.07 points, or 0.4%, to 2,119.21. The NASDAQ composite slid 10.74 points, or 0.2%, to 5,208.12. The tech-heavy index closed at a record high the previous two days. The three major stock indexes remain up for the year.