Sluggish iPad sales put Apple into reverse

Apple now has more products and sells them in more places but, for the third consecutive quarter, Apple does not have more profit.

Apple now has more products and sells them in more places but, for the third consecutive quarter, Apple does not have more profit.

On Monday, Apple reported a profit of $US7.5 billion ($7.8 billion) for the fourth quarter, on revenue of $US37.5 billion, down from earnings of $US8.2 billion on $US36 billion in revenue during the same period last year.

Apple's iPhone sales were up sharply, thanks in part to the introduction of new models last month. But iPad sales were flat, and Mac sales slowed - both devices brought in less revenue than a year ago.

"Those are really good numbers obviously," said Tero Kuittinen, an analyst for Alekstra, a mobile diagnostics firm. "But I think the tablet problem is undermining them."

Apple's profit remains the envy of the tech industry, and most other industries. But the slowdown of its growth has become a concern for some investors.

Apple is counting on new products to improve its bottom line, especially during the Christmas period, the most lucrative time of year for hardware makers.

In September, the company released two new iPhones, and last week, it introduced new Mac laptops and two new iPads.

Apple's chief executive Timothy Cook said: "It's going to be an iPad Christmas."

And there is little doubt iPads will sell in huge quantities in the next quarter. But there is doubt about which iPads will sell best - the new iPad Air, which is the larger and more expensive model, or the iPad Mini.

The Mini has become popular among consumers since it was released last year. But the device has a smaller profit margin than its more expensive cousins, and its high sales may be part of the reason behind a 13 per cent decline in overall iPad revenue.

That decline, combined with flat sales, is particularly troubling with the tablet market still growing quickly. Apple sold 14.1 million iPads over the quarter, up barely from 14 million in the quarter a year ago. That is far from the pace of the market: Manufacturers are expected to ship 184.4 million tablets this year, up from 120 million last year.

"In a strongly growing market, clearly that's a problem," Mr Kuittinen said. He added that Apple had clearly sacrificed market share to competitors of cheaper tablets such as Amazon and Google in order to protect its profit margins.

"Investors have bad memories from companies who decided they're going to give up market share in the consumer electronics space," he said, referring to Apple's decision, nearly a generation ago, to focus on profits with its Macintosh computers. The company came roaring back in the past decade after almost disappearing.

In the last quarter, Mac sales were slightly down at 4.6 million.

iPhones were a different matter, as the devices flew off the shelves. Apple said it sold 33.8 million iPhones, up from 26.9 million in the same quarter last year.

This year, for the first time, Apple released two new iPhone models at once - the lower-cost plastic iPhone 5C, and the high-end iPhone 5S.

But because the two phones were released toward the end of last quarter, it is too early to tell whether the second new iPhone will translate into significantly higher sales. The rise in iPhone sales over the last quarter most likely came from early adopters quickly snatching up the iPhone 5S.

On the sidelines of Apple's recent product releases, some investors have pushed for Apple to unload some of its growing cash pile back to shareholders.

Carl Icahn, the activist investor, has pushed Apple to begin a buyback of $US150 billion in stock.

On the earnings call, Mr Cook gave no indication that Apple would heed Mr Icahn's suggestion. In the past five quarters, it had returned $US36 billion to shareholders in dividends, he said.

Mr Cook also said Apple had made 15 acquisitions, which illustrated that the company was investing its cash in areas that could help its growth. He also suggested that the company was working on new product categories.

The new products might include a long-discussed smartwatch or Apple television.

While hardware takes the front seat of Apple's business, the company also made big moves with software recently. Last week, it said it would offer its Mac operating system free along with a suite of productivity apps for Macs, iPads and iPhones.

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