Apple: Siri Doesn’t Deliver

In a rare event, Apple’s recently announced quarterly results fell short of market expectations. After its meteoric rise, the stock also turned bearish. But given Apple’s strength, this should be just a minor bump in the road.

Apple’s Financials
Apple’s (Nasdaq:AAPL) Q3 revenues grew 22.6% over the year to $35.02 billion, significantly short of the market’s targeted $37.49 billion. EPS grew 19.6% over the year to $9.32 and was short of the Street’s target of $10.35. Apple attributed the miss on revenue figures to consumers deferring purchase of the iPhone 4 in anticipation of an upgraded iPhone 5.

iPad sales grew 84% over the year to 17 million, generating $9.17 million in revenues. iPhone sales grew a comparatively modest 28% over the year to 26.03 million. Analysts were estimating sales of 28.4 million units for iPhone for the quarter. Revenues from iPhone sales grew 22% over the year to $16.25 billion. During the quarter, sales of Macintosh computers grew 2% over the year to 4.02 million units. However, revenues from the segment fell 3% to $4.93 billion. iPod sales continued to decline in the quarter and reported a volume reduction of 10% to 6.75 million. Revenues from iPods were down 20% over the year to $1.06 billion. Revenues from music-related products and services grew 31% over the year to $2.06 million.

According to a Gartner report, Apple is the third-largest manufacturer of cellphones, with a 7.9% market share. A year ago, Apple’s phones accounted for 3.9% of the market. Comparing smartphones separately, Apple reported a 23% market share in the first quarter this year compared with 17% a year ago.

For the current quarter, Apple projected revenues of $34 billion with EPS of $7.65.

By geography, Apple saw strongest growth in the Japanese and Asia Pacific markets. Revenues from China grew 48% over the year to $5.7 billion driven by increased demand for iPhones in that country. Last quarter, Apple entered into agreements with wireless providers in China to boost iPhone sales. As part of its focus on China, Apple is expected to launch its next phone in China in October 2012. The phone will feature Mandarin and Cantonese language support for Siri, the iPhone’s personal voice assistant program. I am concerned, however, about the English-language version of Siri which, in contrast to Apple’s usual approach, overpromises and underdelivers. It’s aery risky game to play, one that Steve Jobs would never have approved of. Verizon is parading TV ads with director Martin Scorsese interacting with Siri in ways that the technology simply doesn’t deliver. Bad move!

Apple’s New OS
Earlier this week, Apple released a new operating system for Mac computers. The OS has features similar to a mobile device OS, such as voice dictation, social media sharing, and apps like the Game Center. Known as Mountain Lion, the OS can be downloaded from the App Store for $19.99. Mountain Lion boasts of improved integration with social networks like Facebook and Twitter, and it has built-in features that enable sharing. It comes with a new Messages app that is similar to the mobile OS and replaces iChat to enable users to send messages to other Apple device users. The OS will be able to integrate with iCloud as well, so that a document on the machine will be accessible on any other Apple device.

Reaching Out to Partners in China
Apple continued to go full steam ahead in China and recently tied up with Chinese web services like Sina, Weibo, and Youku to help improve improved text input, add new fonts, and build a Chinese dictionary for its machines. They also tied up with Baidu to enable search in Safari.

Acquisitions in Music Editing
Recently Apple acquired a small Italian music editing software maker Redmatica. Redmatica is known for building and selling digital music editing software. Its tools are designed to run on Apple’s Mac OS X. Its main product, KeyMap Pro, is an editor for sampled instruments. The acquisition will help Apple strengthen its music offerings. The terms of the deal were not disclosed.

Apple is trading at $574.88 with a market capitalization of $538.89 billion. It touched a four-year high of $644.00 in April 2012. The market hasn’t reacted well to the misses in Apple’s earnings report. But with the new iPhone expected this fall, analysts are confident that Apple will rise again.

This segment is a part in the series : Apple