Apple sees profit decline in Q1 2013 Sales

Does Apple have an Identity Crisis?

Apple Inc is preparing to report its first quarterly earnings decline in a decade, with investors getting increasingly jittery, and a recent plunge in its share price. Investors are nervous about the way Wall Street is valuing the Cupertino company, as though it were a traditional hardware maker only. Certain sections of analysts and investors think that the company should be evaluated as a software hardware hybrid instead. This distinction is critical; if Apple, identified as it is with products like the iPad and iPhone, is seen as primarily a hardware business, it could run aground with changing consumer tastes and tablets and smartphones getting commoditized. That is something that happened to the makers of BlackBerry whose hardware was overtaken by Apple products.

If, instead, Apple is categorized as a hardware-software hybrid, it could be evaluated like software and internet makers which often trade at higher prices. But Wall Street continues to classify Apple, which made a staggering profit of $13 billion in the quarter ended December, as a hardware maker.

Apple is still a highly efficient company at making money, with gross margins of about 40%, roughly double of Dell’s and HP’s. It has characteristics that are very different from other hardware companies; its customers, for instance, very often go in for annual upgrades of their Apple products, which is much more frequent than typical PC four year upgrade cycles of hardware tech businesses, like Dell or HP. Apple’s iTunes and operating system are already everywhere. They have around 500 million App Store accounts and a customer base for selling new services, giving the company a recurring revenue stream in software and services. In the last quarter, Apple earned revenues of $3.7 billion, amounting to 7% of total revenue, from its software and services, and iTunes. But Apple’s woes won’t be over even if Wall Street changes its views on Apple. According to analyst Gene Munster, people loved their Apple products and wanted to buy them, but they had only six months. There had to be something cool coming.