Fund managers see ‘reality’ of Apple’s disappointing sales

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The announcement of Apple’s sales figures on Wednesday evening sparked an immediate reaction with a 10 per cent drop in shares overnight.

However, there has been no shocked response from fund managers, who see the figures as a more realistic picture of the tech giant’s future growth.

Apple’s shares have now fallen 30 per cent from the $702 recorded in September 2012 to $461.31 following the latest dip. The overnight drop in shares on Wednesday wiped out some $50bn from the firm’s value after it failed to meet Wall Street’s revenue forecasts.

Amongst the funds with the largest holdings for Apple are Legg Mason Capital Management Growth with a 7.2 per cent position, Standard Life North American with a 5.29 per cent position and Axa Framlington American Growth with an 8.2 per cent holding.

Standard Life senior vice president of US equity operations Brian Fox says Apple’s results confirm recent concerns that iPhone momentum is slowing, with margins under pressure against high levels from the previous year.

He says: “It is becoming clearer that Apple likely needs to expand its phone lineup as smartphone growth is increasingly driven by emerging markets (where price points are critical). The company’s cash generation and balance sheet remain very strong, however the market is focused on how Apple manages its way through upcoming product transitions.”

Fox says Apple’s outlook for the March quarter is “particularly noteworthy, as it implies a sharp deceleration in iPhone growth and a reasonably sized [earnings per share] decline versus last year.”

Smith & Williamson North American trust co-manager Robert Royle highlights a change in Apple’s guidance that could provide a truer projection of future growth. He says: “The guidance was weak, especially when you consider they have changed the nature of it. They used to guide conservatively and beat it on average by 35 per cent on the bottom line, whereas this new guidance appears to be more like what they expect to earn.”

Royle describes the current valuation for Apple at 11x price-earnings as “attractive”, assuming operating margins – which are more twice that of the industry – hold.

Fourpoints portfolio manager and analyst Leslie Griffe de Malval says the results are in many ways better than expected.

He says: “Apple results were mostly in line with the expectations, with EPS significantly above expectations. Indeed, the current quarter forecasts were light versus the consensus. Apple is now a more ‘normal’ company and the market did not appreciate that. Apple’s challenges in the future are to regain momentum on the product side to demonstrate better growth again.”

RCM Technology trust lead manager Walter Price describes Apple’s results as “disappointing”, after shipping figures of iPhones failed to meet investor’s expectations.

Price reinforces the need for better guidance from Apple and product development to keep up with competitors.

He says: “The March guidance is not the usual conservative guidance that we have come to expect from Apple’s [chief financial officer]. We think that is realistic but it means that earnings will decline in the next quarter. The result was a decline in the stock in the aftermarket.

“A bigger issue for us is that Apple did not seem to acknowledge its problems and its market share loss to Samsung and Android. Apple needs more models, especially a wider phone and they need to acknowledge that their margins are unsustainably high. It looks as if 2013 will likely be a difficult year for Apple.”