The Breakdown

Explaining Southern California's economy

Apple collapse? What Apple collapse? Company beats earnings expectations

37031 full
37031 full

If you've been hiding in your bomb shelter, you probably missed Apple's precipitous stock-price drop last week and this, bottoming at $560 per share today and giving up, like, $100 billion in market cap. But then the magic of shattered earnings expectations hit and hit HARD. The company made $11.6 billion in its second fiscal quarter and earned $12.30 per share. That killed the expectation of $10.06 per share, according to Business Insider.

More importantly, the "weakness" in iPhone sales didn't materialize — Apple sold 35.1 million, nearly five million more than expected. This was one of the possible negatives driving Apple share price down, as analysts speculated on what remains the core of Apple's business.

There is a hint of bad news amid all this boffo good news, which has pushed Apple right back up to $600 per share in after-hours trading (a whopping 7.35-percent increase). The theoretically revolutionary iPad sold "only" 11.8 million units, below the 13 million that were anticipated. 

Big deal, you might say. What about those iPhones! iPhones! iPhones! Well, iPhones are great, and Apple does have the iPhone 5 coming later this year. But Mac sales are also weakening. This leaves you with a very successful, high-flying Apple that has, increasingly, one product driving the train!

The major question is whether Apple will be able to keep the iPhone going as a defining product in the mobile space, supporting 30-plus-percent profit margins. The iPod is sunsetting. Apple can't make as much money on iPads as it can on Macs. And don't forget that Apple is supporting its margins by extracting the profits of the wireless providers, like Verizon and AT&T, that subsidize iPhone costs. If the providers decide to stop letting Apple do this, it will erode Cupertino's margins.

And while the iPhone 5 could be utterly awesome, it's still basically going to be an iPhone (just thinner, with a bigger screen, and a better Siri...possibly). The iPad is moving, but it's nowhere near iPhone volume. An iTV could be priced for wide profit margins (we've seen $5000 per unit as a number), but will Apple really decide that wants to enter the cutthroat TV market? 

The nightmare scenario is that Apple stalls on the product front. Then it will need to use its $100-billion cash hoard to go shopping for growth. And Apple isn't a company that ever wants to buy growth or innovation.

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