Sales of Apple’s iPhone beat expectations in the third quarter but margins slid sharply as the tech giant sold more of its cheaper older models along with the new iPhone 5 model.
The world’s largest technology company said Tuesday that profit fell 22 percent as gross margins slid below 37 percent from more than 42 percent in the year-ago quarter.
At 36.9 percent, margins are nearly 700 basis points off their levels last year.
While Apple saw its iPhone shipments jump 20% to 31.2 million, beating the consensus estimate by a wide margin and helping the company beat profit forecasts, increased competition is clearly taking a toll on profitability.
Samsung and other Android-powered smartphones provide different, and in some cases, cheaper alternatives to Apple’s iPhones, while the return of the Blackberry and the prospects of Windows powered phones could make it harder to gain share.
The third quarter is typically a slow time for Apple. That is because the company traditionally introduces a new iPhone model in the fall, so in the summer many consumers are waiting for the next model to be released. But sales of iPhones were strong.
Apple sold 31.2 million iPhones, which it said was “a record for the June quarter.” That was up from the 26 million it sold during the same time period in 2012, but down from 37.4 million last quarter.
Apple moved 14.6 million iPads during the quarter, down from 17 million last year and 19.5 million in the second quarter.
On the financials, revenue landed at $35.3 billion, up slightly from $35 billion last year, but down from last quarter’s $43.6 billion. Profit was at $6.9 billion, down from $8.8 billion last year and $9.5 billion last quarter, says PC Mag.
“The iPhone number should provide some comfort to investors who were worried about smartphone demand. That’s one of the reasons the stock is up. Expectations were not strong for this quarter,” said Shannon Cross of Cross Research.
The figures were buoyed by sales of its older, cheaper devices such as the iPhone 4 in the developing world, but Apple chief executive Tim Cook said he thinks there is still considerable demand for its top-end products, despite intensifying competition from cheaper rivals.
He also intimated that the company could be on the brink of a major new product launch, saying that it was set to have a “busy” end to the year. His comments will help to quell fears amongst some investors that Apple has lost its innovative drive.
Apple CFO Peter Oppenheimer said “iPhone sales were ahead of expectations” in developed and emerging markets – from India to the U.S. The iPhone 5 was “by far” the most popular iPhone, but Apple also moved the iPhone 4 and 4S during the quarter.
In the press release accompanying the results announcement, Apple CEO added: “We are really excited about the upcoming releases of iOS 7 and OS X Mavericks, and we are laser-focused and working hard on some amazing new products that we will introduce in the fall and across 2014.”
Apple now has a cash pile of $146.6bn of which $106bn is held offshore, writes IBT.