Apple earnings slip on rampant iPhone speculation

Apple fired a rare miss last quarter with slowed growth, declining iPhone sales and a drop in profit. iPhone sales were pointedly down in the second half of the quarter after iOS 5 was announced and speculation of a new iPhone intensified.

As always, Apple is playing the slip off in a typically calm, cool and collected manner. The drop in iPhone sales was less than expected, according to executives, and CEO Tim Cook said he is “confident that (Apple) will set an all-time record for iPhone this quarter.”

iPhone sales were up 21% year-over-year to 17.07 million units, but down from the previous two quarters. Year-over-year iPad sales shot up 166% to a new high of 11.12 million, Mac sales jumped 26% to 4.89 million and iPod sales declined 27% to 6.62 million.

Overall, Apple banked $6.62 billion in profit on $28.27 billion in revenue. Going into the current quarter, confidence is high for the iPhone 4S and apparent in the $37 billion guidance laid out by the company.

“We’ve gotten off to a great start with the 4S. We’ve sold over 4 million in just 3 days after launch, and so we’re thrilled with the start that we have. We’re confident that we will have a large supply, but I don’t want to predict when supply and demand might balance because the demand is obviously extremely high right now,” Cook said.

iPhones are now supported by 230 carriers in 105 countries and Cook noted that the company aspires to reach much larger volumes than where they are today. “We think the smartphone market will eventually absorb the handset market,” he said. “The handset market is this huge market. It’s 1.5 billion handsets. And the smartphone market, depending upon which service you believe, is a bit over 400 million or so… But the big win is to eat into the 1.5 billion and not just for us but I think for others as well, and we are very focused on doing that.”

Apple closed the quarter with iPad distribution in 90 countries and has now sold more than 40 million iPods cumulatively.

Cook reiterated his belief that tablets will eventually be larger than the PC market. The iPad commands the tablet market and the entire space has largely become Apple’s for the taking. Dismissing competing tablets, Cook said ”I think it’s reasonable to say none of these have gained any traction thus far.”

As for the ongoing patent wars over smartphones and tablets, Cook declined to show Apple’s hand or characterize its objective, but did explain Apple’s rationale.

“We spend a lot of time and money and resource in coming up with incredible innovations and we don’t like it when someone else takes those,” Cook said. ” Unfortunately we’ve been pushed into the court system as a remedy to that.”

Cook began the call with a tribute to Steve Jobs:

“This is our first earnings call since the passing of Steve Jobs. The world has lost a visionary, a creative genius and an amazing human being. Steve was a great leader and mentor and inspired everyone at Apple to do extraordinary things. His spirit will forever be the foundation of Apple, and we are dedicated to continuing the amazing work that he loved so much.”

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