Apple’s First Quarterly Profit Decline in a Decade

Apple’s First Quarterly Profit Decline in a Decade
A customer walks under an Apple logo at an Apple store in Shanghai on Feb. 22, 2012. An Apple computer with filtering software installed on it was recently shipped from Shanghai to a customer in New York. (PETER PARKS/AFP/Getty Images)
Tara MacIsaac
4/24/2013
Updated:
4/27/2013

Apple reported a net profit of $9.5 billion for the first quarter of 2013, compared to a net profit of $11.6 billion last quarter, the first quarterly profit decline in more than a decade. Investors are slashing their price targets on Apple shares, and confidence is low in the company’s ability to grow with technological innovations.

JP Morgan’s Mark Moskowitz cut his target price on Apple shares from $725 to $545, according to the Financial Times. Canaccord Genuity cut its target price from $600 to $560, predicting iPhone will lose some of the market share to Samsung and other companies this year, reports the Times.

A February report by Bank of America Merill Lynch, quoted by the Financial Post states: “We believe Apple’s recent products, the iPhone 5 and the iPad Mini simply can’t stand next to the innovation and buzz Samsung has brought to the market.”

Apple CEO Tim Cook suggested in a conference call following the quarterly report release Tuesday that the company will delay the iPhone 5S debut, expected this summer, until the fall.

“The most important objective for Apple will always be creating innovative products,” he said, noting that the main objective is not to boost stock price in the short term.

Apple’s stock price indicates declining investor confidence in the company’s ability to create innovative products. Investors pay $9.20 for every dollar of Apple’s profit, compared to $24 for every dollar of Google’s profit.

Apple has not confirmed rumors of a “smart” watch and new television set in the works.

$100 Billion Shareholder Payout

Apple also announced on Tuesday “the largest single share repurchase authorization in history.”

The company has dedicated $60 billion to repurchasing shares, to be paid out by the end of 2015. It expects to use a total $100 billion in its expanded program to return capital to shareholders.

“We will continue to return capital to shareholders through dividends, share repurchases, and cash used to net-share-settle vesting RSUs [restricted stock units],” said Peter Oppenheimer, Apple’s CFO, in a company press release. “We continue to generate cash in excess of our needs to operate the business, invest in our future, and maintain flexibility to take advantage of strategic opportunities.”

The company’s payout to its shareholders may be a sign of stalled growth—that it is having trouble identifying how to reinvest the money in the company, say analysts. Apple has faced pressure from Wall Street to invest its cash, which has been earning less than 1 percent interest.

The company has cash—but it’s in foreign banks—so, it will borrow money for the payout in the United States. Apple said details on how much money it will borrow will be announced in the near future.

The Associated Press contributed to this report.