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Investors Less Pessimistic About Apple's Growth Potential

ROBERT SIEGEL, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

AUDIE CORNISH, HOST:

And I'm Audie Cornish. This afternoon, investors watched even more closely than usual as Apple released its quarterly earnings. The numbers beat Wall Street's gloomy expectations. But for the first time in a decade, Apple's profits fell from the same period a year earlier. NPR technology correspondent Steve Henn joins us from Silicon Valley to talk about today's results. Hey there, Steve.

STEVE HENN, BYLINE: Hi.

CORNISH: So how did Apple do?

HENN: Well, any other company would have been thrilled with today's report. Apple brought more than $43 billion in revenue over the last three months, and that's a new record for Apple. And it also booked nine and a half billion dollars in profit. But compared with how Apple did a year ago, the results have been - may have been a bit disappointing. The company's profit margin fell, and in the same quarter last year, Apple earned almost $2 billion more in profit.

CORNISH: Now, last September, a single share of Apple stock was selling for more than $700, and recently, shares traded for less than 400. Then last week, Apple lost the title of the world's most valuable...

HENN: Yeah.

CORNISH: ...company. So I mean what's going on with this company?

HENN: Well, I think a year ago when Apple stock was on its sort of unstoppable run-up toward $700 a share, a lot of people on Wall Street and elsewhere had expectations about the company that have proven to be a bit unrealistic. People really expected that Apple was going to introduce some kind of new blockbuster product, probably a television set, and that this new product category would open up a new multibillion-dollar line of business for Apple. Obviously, that hasn't happened.

So analysts were expecting the next big thing, and they were disappointed. Instead, Apple introduced the iPad Mini. And for analysts, the Mini just isn't a very exciting product. It has a much smaller profit margin than the bigger iPad. So Apple's profit margins across the entire company are coming down, and that makes a lot of investors nervous. One of the reasons Apple has been so successful over the years is it's been able to protect its profits and charge much more for its computers and other gadgets than competing firms. If competition from companies like Samsung begins to force Apple to compete on price, that's really bad news for the stock.

CORNISH: Lastly, Steve - Apple still earns enormous profits. I mean is it really in trouble?

HENN: No. It's not in trouble. You know, Apple's iPhone business alone is bigger than all of Amazon, and it's growing faster than Amazon. But inventors are no longer buying Apple because they expect growth. Instead, they're looking for a return. So today, Apple increased its dividend to shareholders and added $50 billion to a stock buyback program. Those are not actions of a company that's in trouble, and those two moves helped boost the stock. In after-hours trading, its share price shot up close to 5 percent before settling down a bit.

CORNISH: That's NPR technology correspondent Steve Henn speaking with us from Silicon Valley. Steve, thanks.

HENN: You're welcome. Transcript provided by NPR, Copyright NPR.

Steve Henn is NPR's technology correspondent based in Menlo Park, California, who is currently on assignment with Planet Money. An award winning journalist, he now covers the intersection of technology and modern life - exploring how digital innovations are changing the way we interact with people we love, the institutions we depend on and the world around us. In 2012 he came frighteningly close to crashing one of the first Tesla sedans ever made. He has taken a ride in a self-driving car, and flown a drone around Stanford's campus with a legal expert on privacy and robotics.
Audie Cornish
Over two decades of journalism, Audie Cornish has become a recognized and trusted voice on the airwaves as co-host of NPR's flagship news program, All Things Considered.
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