Apple Plunge Erases $33 Billion as Product Concerns Reappear

Apple Inc. shares tumbled, wiping out $33 billion in market value, after disappointing iPhone sales rekindled concerns over whether the company can keep making must-have products.
Even though iPhone sales climbed 35 percent to 47.5 million units in the fiscal third quarter, the result fell short of the 48.8 million shipments projected by analysts. That, plus a revenue forecast for the current period that missed estimates, triggered the steepest post-earnings share decline in extended trading Tuesday since January 2013, when Chief Executive Officer Tim Cook was under scrutiny over his ability to keep up Apple’s pace of innovation and sales growth.
Apple’s shares fell 4.4 percent to $125 at 1:36 p.m. Wednesday in New York.
While Cook has succeeded in introducing an entirely new category with the Apple Watch, sales remain modest, indicating that Apple will have to keep relying on the iPhone to fuel growth. The company probably shipped at least 1.9 million smartwatches since it debuted in April, short of the 3 million to 5 million projected by analysts, according to data compiled by Bloomberg. Even after earning results were published, estimates on Apple Watch shipments varied widely, and Apple hasn’t disclosed any specific sales data for the new product.
“Investors are asking how much earnings upside is left in the next year,” said Gene Munster, an analyst at Piper Jaffray Cos. “What’s next?”
‘Head Room’
Apple also reported the largest-ever cash pile -- $202.8 billion, up from the record $194 billion the company posted in the previous quarter. The company has cash of $15.3 billion, short-term investments of $19.4 billion and long-term investments of $168.1 billion.
Cook said on a conference call with analysts on Tuesday that the iPhone “has a lot of legs to it” and that 73 percent of old iPhone owners still haven’t upgraded to the new device, which was introduced last September.
“We view that as a very bullish sign on the future that there’s a lot of head room left for upgraders,” Cook said. “We also are incredibly happy to see the highest Android switcher rate that we’ve observed.”
Katy Huberty, an analyst at Morgan Stanley, pushed back against those assertions during the call, saying the company is facing some large comparisons. Apple sold a record number of iPhones in the final three months of 2014, the all-important holiday shopping season.