Apple logs Q3 beat, but Q4 sales outlook disappoints

Apple (AAPL) posted fiscal third-quarter profits and sales that topped analysts' estimates, but the iPhone-maker's current-quarter revenue outlook disappointed investors.

The world's biggest technology company said it earned $1.85 a share, beating estimates by four cents, for the three months ended June 27. Sales of $49.6 billion, up 33% from a year earlier, also topped views of $49.4 billion. However, Apple's current-quarter revenue outlook of $49 billion to $51 billion, came in on the low end of the FactSet Research Systems consensus of $50.9 billion.

Apple said it sold 47.5 million iPhones during the quarter, essentially matching estimates. Meanwhile, Cupertino, Calif-based Apple disclosed iPad sales of 10.9 million units, and Mac sales of 4.8 million units, both coming in close to Wall Street forecasts.

Apple shares, which had gained 19% so far this year, tumbled some 7% in extended action.

The stock tumbling despite Apple posting the highest rate of revenue growth in three years, sales in China more than doubling and iPhone sales increasing 59% signaled just how high investor expectation have grown for the world's largest and most successful technology company. Although earnings per share beat analysts' estimates by 2%, Apple had exceeded that target by an average of 10% over the previous four quarters.

Apple CEO Tim Cook said the company was pleased with early sales of the new Apple Watch but did not disclose how many have been sold. "The feedback from Apple Watch customers is incredibly positive and we've been very happy with customer satisfaction and usage statistics," Cook said on a call with analysts.

“As we said in the past, we do not plan to disclose Apple Watch metrics because we don't intend to provide insight that could help our competitors,” Apple CFO Luca Maestri said on the analyst call.

Cook did go out of his way to deny a third party report that Apple Watch sales had plunged by 90% after the first month, however. "Our June sales were higher than April or May," he said in reply to an analyst question about the pace of sales. "I realize that's very different than some of what is being written, but June sales were the highest."

Big screens sell

The quarter demonstrated the strength of Apple's current iPhone portfolio. For the most recent generation, Apple increased its screen sizes to 4.7" and 5.5" to better compete with Android phones. Cook said Apple saw the highest rate ever of Android users switching to the iPhone. And the average selling price of the iPhone shot up almost $100 to $662 from a year earlier when only smaller 4" screen iPhones were sold.

Apple's sales in China more than doubled from a year earlier to $13.2 billion. Sales from the region now account for more than one out of every four dollars Apple brings in, up from one out of six a year earlier.

The big gain came despite some economic turmoil in the region. "This worry is probably overstated and so we're not changing anything," Cook said, noting the continued long-term growth of the middle class in China. "We would be foolish to change our plans. I think China is a fantastic geography with an unprecedented level of opportunity there."