Why Apple Inc. (AAPL) iPhone Sales Missed Estimates

Why Apple Inc. (AAPL) iPhone Sales Missed Estimates
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Apple Inc. (NASDAQ:AAPL)’s shares tanked as much as 8% after the company reported its Q1 results on January 27. Investors were concerned over lowered-than-expected iPhone sales during the all-important holiday quarter and downbeat Q2 guidance. Analysts were expecting the company to sell at least 55-56 million iPhones during the December quarter. But actual sales came at 51 million units. Another noticeable fact was that Apple’s revenues grew in almost every geographic region YoY, except in North America where sales were down 1% from the same quarter last year.

Telecom carriers hurt Apple iPhone sales

Raymond James analysts Tavis C. McCourt and Daniel Toomey offer a sensible reason as to why Apple Inc. (NASDAQ:AAPL) missed estimates. AT&T Inc. (NYSE:T) reported its December quarter results yesterday. The telecom operator’s smartphone sales were down 22.5% YoY. Its key rivals Verizon Communications Inc. (NYSE:VZ) also reported a 10% decline in smartphone sales during the same period.

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Though neither of the carriers provide exact iPhone activation data, the Raymond James analysts say Apple Inc. (NASDAQ:AAPL) surely held share at both carriers. The combined iPhone activations at AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) would have been close to 12 million, down 17% from 15 million activations in the same period last year.  During Q3, 2013, the two carriers posted a 14% growth in iPhone activation, according to Raymond James estimates. So, carrier actions to limit early upgrades had a greater impact than the lucrative iPhone financing programs.

Raymond James analysts were expecting a similar (14%) growth in iPhone activation in December quarter as well. The two carriers alone accounted for about 80% shortfall, or 4 million out of 5 million, in iPhone sales numbers. That’s in line with Apple Inc. (NASDAQ:AAPL) CEO Tim Cook’s statement during the conference call that the iPhone sales were weak only in North America, while all other markets did reasonably well.

Will Apple iPhone sales jump after March?

Since the weakness in North America was driven by the two carriers taking an aggressive stance on early upgrades, Raymond James expects sales decline at these two carriers to continue through the current quarter before stabilizing in April. However, analysts don’t expect the iPhone sales to jump big-time after March. That’s because sales were very strong during the second and third quarters of 2013 due to heavy trade-in promotions, attractive financing plans and the launch of iPhone on T-Mobile US Inc (NYSE:TMUS).

Raymond James is bullish on Apple Inc. (NASDAQ:AAPL). The research firm has an Outperform rating on the stock. Apple Inc. (NASDAQ:AAPL) shares were down 1.09% to $501 at 10:18 AM EST.

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