Apple Falls as Concern Over IPhone Growth Outweighs Earnings

Apple Inc.’s stock dropped amid concerns that the rapid iPhone growth beyond its earnings jump can’t continue.

“Apple is in ‘deceleration’ mode on iPhone trends,” Tavis McCourt, an analyst at Raymond James & Associates, wrote in a research note Tuesday.

Year-to-year growth likely peaked in December, he wrote. While saying that the results reported Monday “were great,” he questioned how long strong trends can continue.

Apple shares fell less than 1 percent to $131.49 at 11:26 a.m. New York time on Tuesday, after dropping as much as 2.3 percent. Apple’s profit rose 33 percent in its most recent quarter, getting a boost from China.

IPhone sales in the country outpaced those in the U.S. for the first time, helped by the Chinese New Year celebration, Apple said. IPhone unit sales jumped 40 percent to 61.2 million. That topped analysts’ average prediction for 58.1 million, based on data compiled by Bloomberg.

Booming demand for the iPhone 6 and 6 Plus put Apple on pace for its highest annual profit since 2012 -- a record -- and the company forecast sales in the current period that may exceed analysts’ estimates.

That signals enduring demand for the larger-screened smartphones and optimism for the new Apple Watch, the company’s first new gadget under Chief Executive Officer Tim Cook.

Watch Margins

McCourt noted that “initial gross margins of the Apple Watch are lower than the overall corporate average” and the company was reluctant to provide long-term margin targets. Like many other analysts, he was generally positive about the Cupertino, California-based company’s results.

Raymond James raised its earnings estimate to $8.83 a share from $8.49 a share for the fiscal year through September and also upgraded its prediction for the following year.

Apple reported net income of $13.6 billion, or $2.33 a share, for the quarter through March. Revenue rose 27 percent to $58 billion. Analysts on average had forecast second-quarter profit of $2.16 a share and sales of $56 billion, according to data compiled by Bloomberg.

“Given the strength of this iPhone cycle, expanded cash distribution, and entry into the first new product category in five years with Apple Watch, we believe Apple remains early in this transformational cycle,” Brian White, an analyst at Cantor Fitzgerald & Co., wrote in a note to investors.

bloomberg.com