Apple profits decline despite iPhone sales boost

Apple's profits have dropped despite an increase in iPhone sales - Samira Hussain reports

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Apple has reported a fourth quarter profit of $7.5bn (£4.6bn), beating analysts' expectations.

Although iPhone sales surged 26% to 33.8 million, profits slid for a third consecutive quarter as margins fell.

On an annual basis, Apple ended its fiscal year with its first earnings decline in 11 years as net profit slipped to $37bn.

Nonetheless, Apple boss Tim Cook insisted that "business was stronger than ever" on an earnings call.

But analysts were disappointed by forward guidance given by the company, which indicated that future profits might continue to slide.

Apple said it expected revenue next year to be somewhere between $55 - $58bn.

It indicated that the gross margin on its products - the difference between the amount the company spends to make a products versus how much consumers pay - would be between 36.5% - 37.5%, less than analysts were expecting.

Peter Oppenheimer, Apple's chief financial officer, explained that this was partly because it cost more to manufacture the company's new iPads and Macbooks and that prices weren't boosted accordingly.

'Game changer'

The company also said it had more than $146.8bn in cash on hand, adding to its considerable reserves.

It indicated that it would be returning more of that money to shareholders in the coming weeks.

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Apple's stock briefly slid before recovering in after hours trading. It remains down by more than 13% for the year.

"We're at the point that people are getting anxious to see the next big game changer that Apple has," says Evan Niu of the financial website The Motley Fool.

"Overall, this is a transitional quarter with the new iPads and iPhones coming out. This coming quarter will be the real test," added Mr Niu.

Chinese market

These were the first earnings to include sales of Apple's new iPhone models: the iPhone 5s and the cheaper iPhone 5c, meant to appeal to the Chinese market.

Revenue in the greater China region - which includes Taiwan - rose by 24%, however the company did not break out sales figures for the iPhone 5c.

Overall, Apple has said that 9 million new iPhones were sold in the first weekend of availability.

Mr Cook insisted that the iPhone 5c was not meant to be the company's "cheaper" model, and defended the company against criticisms that it had made the phone too expensive to appeal to consumers.

"I realise that some people were reading rumours that the entry iPhone would be the 5c but that was not our intent," said Mr Cook.

"Our entry iPhone was the iPhone 4s."

Mr Cook touted the number of new products Apple has released in the past few months, almost completely refreshing its product line.

The releases include the new iPhone models, an iPad mini with retina display, the new iPad air, updates to its Macbook laptops, and a release of an update to its operating system, iOs7.

"We're excited to go into the holidays" with these new models said Mr Cook in a statement to discuss the earnings.

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