Apple posts flat profit despite record sales

Despite posting record quarterly revenue of $57.6bn in 1Q14, device maker Apple has worried investors by posting flat profit for the period year on year, seeing a drop in gross margin and revealing it is expecting to generate flat revenues in 2Q14 compared with a year earlier.

Apple sold 51 million iPhones in the quarter, which it said was an all time record for the firm and an increase on the 47.8 million handsets sold in 1Q13. It also sold a record 26 million iPads and 4.8 million Macs. These sales contributed to the $57.6bn quarterly revenue figure, a 5.7 per cent increase on the $54.5bn generated in the same quarter a year ago.

However, quarterly net profit stood at $13.1bn, the same as what the firm recorded in 1Q13. Gross margin for the quarter also fell from 38.6 per cent to 37.9 per cent year on year.

For the coming quarter, the firm stated that it expects to generate revenue between $42bn and $44bn, which would mark at best a slight improvement to the $43.6bn it generated in 2Q13. The firm saw its first profit dip in a decade in 2Q13, when it recorded $9.5bn net profit marking a more than 18 per cent decline on the $11.6bn generated in 2Q12.

“We are really happy with our record iPhone and iPad sales, the strong performance of our Mac products and the continued growth of iTunes, Software and Services,” said Tim Cook, Apple’s CEO

Loizos Heracleous, Professor of strategy at Warwick Business School moved to play down concerns over Apple’s financial performance claiming that the firm has sustained reasonable growth given its high revenue and earnings base.

“Its margins are slightly lower at 37.9 per cent but still impressive for the tech sector. In terms of regions, China is the engine of growth and Apple is taking the right steps to consolidate this potential.”

He added that despite achieving recording record sales, the growth rates of the iPhone and iPad are reducing.

“This means that to recapture the rates of growth that Apple historically delivered, there should be new product introductions of the calibre of these leading products,” Heracleous added.

“Despite lower growth rates, Apple remains a solid company with enduring competitive advantages. These include its prowess in design, marketing, innovation, ecosystem creation, and intense operational efficiency. Even if historical growth rates are not maintained, these competitive advantages are hard to beat by competitors, at least in the near to medium term.”

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