Apple's iPhone sales fall short while Samsung sets new smartphone sales record in Q4

Lower-than-expected holiday iPhone sales and a weak revenue forecast by Apple Inc renewed fears about Chinese demand and a tepid global market, wiping 8 per cent off company stock.

This year was to have been Apple Inc's watershed moment in China, when a long-awaited deal with the nation's largest carrier was to have propelled it back toward the top ranks of its most crucial market, clawing back ground from rival Samsung Electronics.

Instead, the forecast for the March quarter - when Apple is expected to have reaped the fruits of that long-awaited deal - raises questions of whether investors had over-estimated that arrangement, and broader concerns about flagging demand for smartphones and tablets in general.

"There's no doubt that shipments (to China Mobile) are lower than almost anybody expected," said Pacific Crest Securities' Andy Hargreaves. Globally, "the high-end smartphone and tablet markets are saturated, and that's not going to grow."

The world's most valuable technology company sold a record 51 million iPhones in the quarter, but that was still shy of the 55 million or so that analysts had expected.

The company forecast sales of $42 billion to $44 billion this quarter, brisker than usual because of Apple's new deal to sell iPhones through China Mobile Ltd, the country's No. 1 carrier. But Wall Street had expected even more - $46 billion, on average.

The company on Monday recorded sales of $57.6 billion in its December or fiscal first quarter, versus expectations for about $57.5 billion. Net profit was flat from a year earlier at $13.1 billion, or $14.50 a share, compared to Thomson Reuters I/B/E/S estimate of $14.07.

"After showing modest signs of improvement, we're back to a no-growth outlook," said JMP Securities' Alex Gauna. "It's something Apple needs to find an answer to... If it can't prove that it's going to be a growth story again, the valuation is too high."

Chief Financial Officer Peter Oppenheimer told analysts on a conference call the March-quarter revenue outlook reflected the effects of a strong U.S. dollar, and more balanced levels of demand and supply for iPhones at the start of 2014 than a year earlier, when demand outstripped available inventory.

Emerging strength

In the December quarter, Apple recorded gross profit margins of 37.9 per cent, roughly in line with expectations.

But it was the iPhone sales and revenue outlook shortfall that drew attention.

The iPhone maker has been ceding ground to Samsung and other rivals in China, its No. 2 market, but investors hope its tie-up with the country's dominant mobile carrier will help reverse its fortunes in the world's largest cellular arena.

In the closely watched greater China region, which includes Hong Kong and Taiwan, revenue jumped 29 per cent from a year earlier to $8.84 billion, bolstered by strong iPad sales and the iPhone's global launch in September, when China was included among launch countries for the first time.

Company executives did not talk about iPhone unit sales in the world's No. 2 economy. But intense competition not just from Samsung but also lower-cost, local rivals like Huawei and Xiaomi is impeding its progress.

The latest figures show Samsung increasing its lead in global smartphone sales.

In the less competitive tablet arena, Apple sold a record 26 million iPads globally in the quarter, in line with Wall Street estimates. Oppenheimer told Reuters the company more than doubled sales of the tablet in mainland China during the December quarter, helping drive that milestone.

The iPod, which sparked the revival of Apple last decade, is now a waning product, selling just over 6 million in the quarter, less than half the year-ago tally.

"IPod sales declined by 52 per cent year-over-year in the December quarter and we would expect them to continue to decline year-over-year in the March quarter," said Oppenheimer.

Longer term, investors continue to hope that Apple, which last came out with a revolutionary new device - the iPad - in 2010, has something up its sleeve for 2014. Speculation currently revolves around a smartwatch or even a long-rumored TV product. Others say Apple can use its huge iPhone and iTunes base to get into mobile payments or advertising.

"What we need to see from them is some sort of new product development and it would be likely in the area of software, mobile payments and advertisements that would get us thinking that there is an opportunity for accretion," Gauna said.

"Hardware can only go in one direction and that's flat or down. It has to be something in the innovation space and they have a lot of things they can do."

Samsung Electronics Co Ltd  sold a record 86 million smartphones in the fourth quarter and widened its lead over Apple Inc even after the U.S. firm reached a new iPhone sales high, data from research firm Strategy Analytics showed.

Samsung took 29.6 per cent of the global smartphone market in the fourth quarter, ahead of Apple's 17.6 per cent, as strong low-end market growth led by Chinese vendors continued to shake up the smartphone industry, the data showed.

Apple sold a record 51 million iPhones in the year-end quarter although its market share slipped from the previous year's 22 per cent, as Huawei Technologies Co Ltd and Lenovo Group Ltd rose to become the world's No.3 and No.4 respectively.

Huawei sold 16.6 million smartphones and Lenovo sold 13.6 million, each taking 5.7 per cent and 4.7 per cent of the market.

"There is clearly now more competition coming from the second-tier smartphone brands. Huawei, LG Electronics and Lenovo each grew their smartphone shipments around two times faster than the global industry average," Strategy Analytics analyst Linda Sui said.

"Samsung and Apple will need to fight hard to hold off these and other hungry challengers during 2014."

For the entire 2013, global smartphone shipments grew 41 per cent to reach a record 990 million. Samsung sold 319.8 million units to take 32.2 per cent, up from 30.4 per cent in 2012.

Apple sold 153.5 million iPhones with a 15.5 per cent market share.