Apple may face 1st profit drop in decade as iPhone slows
Apple’s CEO Tim Cook is facing rising production costs, competition from Samsung and slowing growth in smartphones, threatening company profits.
Apple Chief Executive Officer Tim Cook is feeling the heat.
Eighteen months after taking over from Steve Jobs, Cook is facing rising production costs, competition from Samsung Electronics and slowing growth in smartphones, threatening profits for the world’s most valuable company.
An earnings report Wednesday may show that fiscal first-quarter net income slipped 2 percent to $12.8 billion, or $13.48 a share, according to analysts’ estimates compiled by Bloomberg. In all except one quarter since 2003, profit has jumped more than 10 percent. Analysts project sales will rise 18 percent to $54.8 billion, the slowest growth rate since 2009.
Apple’s shares have dropped almost 30 percent since September, erasing about $190 billion in market value, on concern that demand for iPhones and iPads is ebbing. Cook, 52, overhauled most of the company’s product line ahead of the holiday-shopping season and results for the period will show for the first time whether the effort paid off.
“Sentiment could not be worse,” said Peter Karazeris, an analyst at Thrivent Financial for Lutherans, which owned about 647,000 Apple shares as of September. “It does take something fundamental to turn that, and we’ll see if they can deliver.”
Many analysts have reduced their estimates amid signs, such as a drop in component purchases, that demand may be weaker for the iPhone, which accounts for more than half of Apple’s sales and profit. In the past three months, analysts’ profit prediction for Apple for fiscal 2013 has declined 7.5 percent to $46.3 billion, or $48.84 a share.
One potential reason for the decline is the increasing prevalence of smartphones worldwide.,
Ben Reitzes, an analyst at Barclays, said comments from Cook and Chief Financial Officer Peter Oppenheimer on a conference call with analysts after the financial results will be the company’s most important in years.
Apple needs to address questions about iPhone demand as well as whether profit margins are tightening because of the cost of making new products, he said.