Apple growth slowdown fuels concern of shift to value stock

New Forecasts

Apple also signaled the slowing growth will continue when it announced a new format for sharing its financial outlook -- one that it indicated will be more reliable. The company in the past has given conservative forecasts that have been ignored by investors and analysts, who instead used the guidance as a starting point to create rosier projections.

Apple said second-quarter sales will be $41 billion to $43 billion, which would be the slowest rate of growth since 2009. The figures Apple provided also indicate profit may fall about 17 percent, the first drop since 2003, said Walt Piecyk, an analyst at BTIG LLC in New York.

“Maybe this isn’t sandbagging and is just the reality that they aren’t going to grow earnings,” Piecyk said.

To truly become a value stock, Apple may have to start giving more of its $137.1 billion cash pile to investors. The company’s dividend yield still lags behind other technology bellwethers. Intel Corp. pays out an indicated 4.3 percent, while Hewlett-Packard Co. pays 3.1 percent and Microsoft Corp.’s indicated yield is 3.33 percent.

Chief Financial Officer Peter Oppenheimer told analysts on a conference call that the company paid out about $4.5 billion of cash in dividends and stock repurchases in the recent quarter. Apple is considering increasing both, Oppenheimer said.

Inevitable Slowdown?

Given Apple’s size -- $156.5 billion in sales last year -- the slowdown was inevitable, according to a recent report by Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co. If growth had continued at the same pace for another five years, revenue would reach $1.2 trillion, or the size of Australia’s gross domestic product, he said.

Any return to faster growth would depend on whether Apple can come up with another blockbuster product, such as a television, or find new customers in developing countries, including China.

“The timing of new products that could excite the market is going to be key to whether the stock continues to go down,” said Michael Walkley, an analyst at Canaccord Genuity. He said the days of Apple’s “meteoric rise” may be over.

Supply Constraints

Cook defended the company’s business on the call, saying revenue would have been higher if not for supply constraints that held back sales of the iPad mini, iPhone and iMac. He also expressed confidence in increased supplies and new products the company will be developing.

Some investors such as David Rolfe of Wedgewood Partners Inc. see renewed growth ahead for Apple. The company generated $13.1 billion of profit on sales of $54.5 billion in the first quarter while not being able to keep up with demand, he said.

“Any other company would love to have these problems,” Rolfe said.

Bloomberg News

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