Apple reports first decline in profits for a decade

Apple reported its first profit decline since 2003 and forecast revenue that missed analysts’ estimates amid slowing iPhone sales growth and accelerating competition from Samsung.

Pressure is now mounting for chief executive Tim Cook to introduce hit products to reignite sales.

Fiscal second-quarter net profit fell 18% to $9.55bn (€7.34bn), or $10.09 a share, Apple said yesterday. Sales in the current period will be $33.5bn to $35.5bn.

Growth is slackening for the iPhone, Apple’s biggest source of sales, as some customers opt for devices from Samsung and other device makers using Google’s software. The disappointing third-quarter forecast indicates a dearth of new products before June, months later than the company typically debuts fresh gadgets, and it may weigh on a stock that has slumped 42% since September.

“Slowing growth, competition and margin compression — people are worried about all of them,” said Shaw Wu, an analyst at Sterne Agee & Leach in San Francisco. “They’ve made the fears look justified.”

Apple also raised its quarterly dividend 15% to $3.05 a share, from $2.65, and boosted its share-repurchase programme to $60bn from $10bn. The company has faced pressure from investors including hedge fund manager David Einhorn of Greenlight Capital to return more of its $137.1bn in cash and investments as of the end of 2012. This was the first increase since Apple reinstated dividends last year.

The iPhone, which made up 56% of sales in the December quarter, lost some of its lustre in the most recent period. Apple sold 37.4m units of the device, compared with 35.1m a year earlier — when iPhone revenue surged 85%. The company also is spending more to make its products.

Apple rose 1.9% to $406.13 at the close in New York last night. It has tumbled 24% this year&.

Gross margin, a yardstick of profitability, will be 36% to 37% in the current period, compared with 38.7% predicted by analysts, according to data compiled by Bloomberg.

Apple sold 19.5m iPads, compared to the 18.5m predicted. It also sold four million Mac computers.

One of Apple’s chief competitors is Samsung, which in March unveiled the Galaxy S4 to challenge the iPhone in the high-end smartphone market.

The South Korea-based company is the world’s largest seller of handsets and relies on a strategy of using a wide range of devices. Apple, by contrast, tends to release a limited number of products a year.

Apple is ceding part of the market to other companies by not introducing an iPhone with as big a screen, said Laurence Balter, an analyst at Oracle Investment Research. “Samsung stole the show with a larger screen,” he said.

Apple’s slowing growth is affecting its network of suppliers. Hon Hai Precision Industry, the company that assembles many of Apple’s products in China, this month reported the biggest sales decline in at least 13 years. LG Display this week posted first-quarter profit below analysts’ estimates on falling sales of smaller displays used by Apple.

Cirrus Logic, which supplies audio chips to Apple, also reported weaker than projected results last week.

Bloomberg