Apple dropped its Q3 2013 financial results?hours ago, and the dust is settling: iPhones up, iPads down, some less-bad-than-expected news, and overall, an after-hours Wall Street vote of confidence.
But international sales is a problem that Apple needs to fix.
Here?s a quick look at Apple and international markets, both year-over-year (YoY) and quarter-over-quarter (QoQ):
Sequentially, that?s down 19 percent, including the relatively strong Americas numbers. Year-over-year, that?s down 8 percent in Europe, 14 percent in China, and 18 percent in the rest of Asia Pacific, in spite of good news in Japan, which was up 27 percent.
In other words, outside of the tiny (but wealthy) island of Japan, international sales for Apple are pretty much in the crapper.
However, after listening to CEO Tim Cook on the earnings conference call, it?s not clear he gets how bad it is, and how much Apple needs an injection of passion and vision and (especially) product.
Speaking about international sales in general, and Chinese sales in particular ? where sales dropped sequentially from $8.2 billion to $4.6 billion ? Cook didn?t sound very concerned.
?In the arc of time,? Cook said in his very philosophical way, ?China is a huge opportunity.?I don?t get discouraged over a 90-day cycle.?
Of course China is a big opportunity. It?s 1.3 billion rapidly richifying people! And international is also a big opportunity: 75 percent of new phones the world is adding are in Asia and Africa.
The question, however, is whether Apple can take advantage of that opportunity ? whether it has the products to do so, or the strategy.
Analysts, who of course aren?t Apple and haven?t built the most-valuable company in the world, as Apple executives have, tend to believe that a cheaper iPhone will open up international markets in a big way.?So repeatedly, analysts on the after-earnings conference call asked Cook both circumspectly and directly about cheaper Apple iPhones, or new products, or new strategies to open new markets.
It wasn?t just Gene Munster this time.
But Cook and CFO Peter Oppenheimer were so careful to reveal nothing of future strategy that I started to feel like I was on an Amazon earnings call.
- Katy Huberty, Morgan Stanley: New product will ship this fall, right?
Oppenheimer and Cook: no real answer, but the earnings press release says yes - Bill Shope, Goldman Sachs: Do you have?increasing concerns on the high end of smartphone market?
Cook: ?Our key catalyst for growth will be new products and services?in existing categories and new ??we have lots of growth opportunity.? - Gene Munster, Piper Jaffray: will you be releasing a cheaper iPhone?
Cook: ?What we?ve seen is that the number of first-time smartphone buyers that the iPhone 4 is attracting is very impressive ? there are always more weapons ? but [iPhone 4]?is a great way for a customer to get into the iOS ecosystem ??we?re very glad to offer it.? - Steve Milunovich, UBS: are there new products in your Q4 forecast?
Oppenheimer: ?I can?t comment on that.?
Cook: ?We?re?here to make great products ??if we focus on that and do that really well, the financial metrics will also come.?
After years of impressive international growth, Apple is not just flat-lining but actually declining. Absent?a $1.6 billion increase in sales close to home in the Americas, today?s earnings would have been a vastly different story. Even?retail sales were actually flat year-over-year, despite more stores, resulting in a drop in average store income from $11.1 million to $10.1 million in the quarter.
It?s pretty clear what the problem is: no significant new Apple products in Q3. And, of course, no cheaper iPhone to hit the lower end of the Americas market and the higher end of the international emerging nations market.
?Clearly, Apple needs new products to boost the bottom line (and it claims that it has them in the pipeline),? Arie Greengart of Current Analysis told me via email.
The question is: Does Cook and team have what it takes to make it happen??You have to believe Apple does, and you have to believe Cook does. But he sure is taking his sweet time to get there.
In fact, some analysts have given up on 2013 for AAPL:
?We believe FY13 will prove to be a year to forget but FY14 will prove to be a year of new product innovations, which we believe will prove positive for the stock price,? Topeka Capital Markets analyst Brian White told his subscribers in a research note after the earnings release.
A year is a long time to wait, on Wall Street.
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