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Summary:

Record revenues and best-yet iPhone and iPad sales weren’t enough to keep already-skittish investors from continuing their freakout of Apple’s future fortunes. Apple CEO Tim Cook did his very best to assure them that he has a plan.

Screen Shot 2013-01-23 at 4.48.38 PM
photo: http://www.keepcalmandcarryon.com

Times are changing at Apple: its margins are down, its profits are not blowing away expectations anymore, and it’s also going to stop sandbagging its earnings forecasts. So Apple CEO Cook had to work harder than usual to comfort the legions of freaked-out Apple shareholders Wednesday, despite posting record revenue, iPhone and iPad sales.

He used his time on Wednesday’s earnings call a bit differently than in the past. First he started off the call offering a full-throated defense of Apple’s future and its “incredible product pipeline.” But most interestingly, he used the time to bat down the barrage of rumors about sinking iPhone demand and the conventional wisdom surrounding Apple’s need for larger-screened and lower-priced devices.

Ignore rumors

Cook likes the mystery that the Apple rumor machine brings to his company’s brand, but it’s starting to come back to bite them. Very rarely does Apple address specific rumors, but Cook did just that on Wednesday, in an attempt to swat down the idea that demand for the iPhone during the current quarter has decreased. He said:

“I want to take a moment and make a comment. I don’t want to comment on any particular rumor, but I’d question the accuracy of any kind of rumor about our plans. I’d stress that even if a particular data point were factual, it would be impossible to interpret [the meaning] for our overall business. Yields can vary, supplier performance can vary … there’s an inordinately long list of things that would make any single data point not a great proxy for what’s going on.”

Don’t get too excited about a 5-inch iPhone

When asked if he felt Apple had its bases covered on variety of screen sizes available for iPhone buyers, Cook appeared to put the kibosh on Apple making its own “phablet,” which has also been rumored. The iPhone 5 with its 4-inch display “has a larger screen size without sacrificing one-handed ease of use,” said Cook. “We put a lot of thinking into screen sizes and we believe we’ve picked the right one.”

We’re not focused on market share

“We’re not interested in revenue for revenues’ sake,” Cook said, when asked if Apple needed more price points to attract more iPhone buyers. “We could put the Apple brand on a lot more stuff, but we don’t want to do that.”

However, in what could be read as a hint of what’s to come, he allowed that Apple has used different price tiers before successfully. “We have a great track record here, of the iPod doing different products at different price points and getting reasonable share for doing that. I wouldn’t view those things as mutually exclusive as some might,” he said.

Does this mean Apple will consider applying the same strategy it uses for iPods, Macs and even the iPad mini for the iPhone? Cook left that very much up in the air.

China, China, China

Cook’s argument about the company’s potential for future growth revolves a lot around China. So he made liberal mention of the region. Apple very clearly wants investors to focus on the possibilities that Greater China (China, Hong Kong and Taiwan) provides. With “triple-digit” growth, it was Apple’s fastest growing region by far, Cook said. Not only are the company’s revenues in the region up (70 percent from the previous quarter), it’s opening more stores: five this year for a total of 11, with more to come. And the company is now breaking out Greater China revenue on its balance sheet specifically, to highlight its importance.

So how Apple is thinking about pricing, screen size and overall demand has a lot to do with how it sees China. As for whether Apple needs a lower-priced iPhone to compete with cheap Android manufacturers, particularly in emerging markets like China, it doesn’t sound like Apple is feeling the pressure just yet. Cook said he was “extremely pleased” with the response to the current iPhones available in the country.

Despite the attempts to convince Wall Street analysts that Apple’s future remains bright, Cook’s explanations appear to have fallen on mostly deaf ears. As of the time of this posting, Apple investors have sent shares down more than 10 percent in afterhours trading to around $457.

Apple’s been on an incredible run but its investors are very nervous that boom years are coming to an end. It’s becoming clear that Apple can’t just go quietly about its business of selling iPhones, and this isn’t going to be the last time we hear Apple’s leaders have to make the case for the company’s success beyond what’s on the balance sheet.

  1. nice one Erica loved it !

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  2. Don’t bother to tell investors who bought Apple at $600 expecting it to go up to stay calm. It’s time for them to panic or start weeping. They got badly shafted by the bull analysts who told them to catch Apple on the dip or get in before the slingshot was let loose. Don’t listen to the supposed Apple geniuses like Horace Dediu or Andy Zaky who’ll both tell you with a straight face that Apple is doing just fine and with a little patience you’ll be rewarded. Truthfully, it’s probably better to listen to the rumors because the rumors would have made you sell your Apple shares before they got totally creamed.

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  3. Hamranhansenhansen Wednesday, January 23, 2013

    > [Apple's] profits are not blowing away expectations anymore

    That is false. “Expectations” is a term of art in investing. Apple has consistently blown away expectations. They beat their own guidance by a wide margin every single quarter. That is blowing away expectations.

    Further:

    – Apple stock was up 20% during 2012 — blowing away expectations
    – Apple’s 2012 was the single most profitable year ever by a public company — blowing away expectations because we expect oil companies and software companies to be the most profitable, not consumer electronics makers (Sony) or PC makers (Dell) or phone makers (Nokia)
    – for years now we’ve been hearing that Apple has peaked, yet they continue to grow, blowing away expectations
    – for years now we’ve been hearing that iOS is doomed to marginalization and tiny market share by generic tech, yet iOS continues to gain market share, not just in phones but now also in the PC market, and in the most mature iPhone m
    – everyone expected iPhone to be the #1 best-selling phone model on Verizon, but who expected iPhone to outsell all the other smartphones put together on Verizon? that blew away expectations

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    1. NO matter what you say. if you just try the iphone, blackberry z10, samsung galaxy 3, or windows phones….iphone sucks and looks like garbage old school.

      so basing on the product itself….apple is going to sink to around $230 a share…where it should have been in the first place.

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  4. Apple cannot ignore the screen size. iphone 6 has to be larger than 4inches. 4 inch is good to hold with one hand, but still harder to reach vertically to the top with one hand anyways.When holding horizontally, a 4.5 or 5inch makes most sense. Giving more choices to customers will stop the bleeding to competitors like samsung, HTC and chinese copycats.

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  5. I buy apple products because they are great quality and great design. I want Cook to be more focused on great products than stock price. Oh BTW at sub $500 stock price ,,,, I am a buyer.

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    1. design is actually very old and prehistoric in today’s standards. in order for iphone to do better they have to redesign from the ground up. the phone has no multitasking abilities and has a home screen button….lol

      it is complete crap.

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  6. Analysts whose ‘expectations were not met’, should be sacked for getting it wrong. I am amazed that Apple continues to sell so many devices. I always thought a market would get saturated, but…

    Apple should be worried about making greaat products that delight consumers, not some people in dingy fluoroscent lit rooms un-emotionally trading pieces of fictitious paper, unable to fix any science on their irrational ‘sentiments’ driven behaviour.

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  7. It’s not a “rumor” that Apple is still selling out the Steve Jobs pipeline and hasn’t succeeded yet with any new initiative. Investors paying Apple’s current price per share have instead a choice between rumors and hype.

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  8. Here’s a thought. Let’s assume Apple were to stop growing altogether and just keep profits at this level going forward.

    Apple could buy back every public share and go private in 7 years assuming the stock doesn’t drop further. If it does continue to drop, they can go private even faster!

    What incentive is there, if any, for Apple to prop up the stock price?

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  9. “And the company is now breaking out Greater China revenue on its balance sheet specifically, to highlight its importance.”

    Revenue is not shown on a balance sheet. Revenue is on an income statement. Confusing an income statement and balance sheet is a somewhat common mistake among journalists, but it is one that betrays the author’s lack of familiarity with fundamental principles of finance and accounting.

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    1. IF they break into china. no one will buy iphone because chinas phones are way better. and korea’s Samsung puts it to shame. there is no reason for any asian to buy iphone.

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  10. Remember the line-ups for the iphone? The same 10 people were in line for 6 hours..haha!! Buy a brand new iphone and yes you get a warranty. That warranty entitles you to a refurbished iphone. Apple is handing out more refurbished iphones than what it is selling brand new ones. I won’t be buying an iphone no time soon. And, what is up with their power cords? Has anyone seen an apple geek wearing a “Fuel Band” lately? I suppose you can buy a wireless weight scale…if your grandmother don’t already have one, duh!!! Laughing!!

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