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Apple Endures a Week of Bad News

It was clearly a week Apple CEO Tim Cook, anyone on his team and those with an interest in the company's fortunes would like to forget. Though the first quarter wasn't kind to other key IT players, notably Google, IBM and Microsoft, Apple was beset with fallout from a disappointing quarter, continued grief from the FBI and even an employee suicide on its main campus in Cupertino, Calif.

On Tuesday, Apple reported revenues and profits declined for the first time in 13 years -- while iPhone sales dropped for the first time ever. Making the news worse, Apple failed to meet analysts' consensus expectations of falling margins and a weak outlook. In the most recent quarter ended March 31, Apple reported revenues of $50.6 billion, 13% lower year-over-year, while net income of $10.5 billion was down 23% and earnings per share of $1.90 fell below expectations of $2 per share. Apple said it shipped 4 million Macs, a 12% decline, and iPad shipments of 10.3 million fell 10%.

Among some bright spots were an increase in services revenue ($6 billion) including a rise in subscribers of its music streaming service to 13 million from 11 million in February. Because sales of the Apple Watch after its first year are reported to have totaled 12 million units --  double the number of iPhones that shipped in its first years -- critics have largely dubbed the Watch a flop, though I'd say it's too early to draw any conclusions.

Nevertheless, after its shares started surging in February, those gains are gone and down 10 percent over the past three days. The news and overall concerns about the economy, weakness in the dollar and disappointing sales in China have led analysts to lower their price targets for Apple's shares and a number of prominent growth funds to sell all of their Apple shares. Those sellers include activist investor Carl Ichan, who began investing heavily in Apple three years ago. Yesterday Ichan told CNBC that his funds no longer hold Apple stock. While he said he believes the stock is cheap, he was concerned about growth in China. "China could be a great shadow for it," Icahn said on yesterday's broadcast, noting he called Cook to tell him of the stock dump. "I told him I think it's a great company. Tim did a great job. It's not that a tsunami hit it but I wonder if a tsunami could hit it."

If Apple's bad week on Wall Street wasn't bad enough, the FBI this week confirmed that it will not reveal how it was able to crack the encryption via a security flaw on the iPhone 5C, used by the shooter in the San Bernardino, Calif. terrorist attack.

Apple was also in the spotlight yesterday following the suicide of a 25-year old employee who reportedly shot himself in the head in a conference room in one of its main buildings. It wasn't immediately clear what led the employee to kill himself.

Posted by Jeffrey Schwartz on 04/29/2016 at 11:56 AM


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