Sunday, April 28, 2013

Apple: There And Back Again

On April 23rd, Apple released the company's results for its second fiscal quarter of 2013. Reported revenue of $43.60 billion represented a March quarter record and the third highest quarterly revenue performance in the company's stored history. However, March quarter earnings per share fell to $10.09, down 18% year-over-year. In today's article I will review Apple's March quarter performance, the recently announced cash distribution plan and the ways in which Apple is setting a firm foundation for future growth. 

Apple: There and Back Again
The graphs below illustrate Apple's recent rates of revenue and earnings per share growth compared with the quarterly rates of growth since the first quarter of FY2010.

In the March-ending period, Apple reported its slowest rate of quarterly revenue growth in years. Since the third quarter of FY2012, quarterly revenue growth has slowed to a pace last seen in FY2009 and the peak of the Great Recession. In the March quarter, Greater China, previously Apple's fastest-growing revenue region, reported only 7.54% revenue growth. That was below the 11.27% revenue growth for the company as a whole. For the current June quarter, Apple has guided to revenue of between $33.5 billion and $35.5 billion and hinted at the possibility of a negative revenue growth quarter. In the June quarter one-year ago, Apple reported revenue of $35.023 billion.

Despite the fact Apple will almost certainly report yet another successive year of record revenue, the company's performance is overshadowed by expectations of flat earnings growth this fiscal year and present-day market preoccupation with the company's massive amounts of cash.

In the March quarter, Apple reported its second consecutive negative eps growth quarter and its first negative net income growth quarter in years. In the recent December quarter, earnings per share fell 0.4% with a modest $14 million rise in net income. In the March quarter, earnings per share fell 17.9% to $10.09 from $12.30 in the prior-year period with a corresponding drop in net income of $2.075 billion. 

Apple has returned from a three-year cycle of extraordinary rates of revenue and earnings growth following the Great Recession that was fueled by strong geographic expansion, the introduction of the iPad and fast rates of growth in the global smartphone market. This is an end to a chapter, not the end of Apple's long-term growth story.