Steve Jobs blasts rivals as iPad sales disappoint

SAN FRANCISCO Tue Oct 19, 2010 8:38am IST

Apple Chief Executive Steve Jobs uses an iPad to run Apple TV as he speaks on stage at Apple's music-themed September media event in San Francisco, California September 1, 2010. REUTERS/Robert Galbraith/Files

Apple Chief Executive Steve Jobs uses an iPad to run Apple TV as he speaks on stage at Apple's music-themed September media event in San Francisco, California September 1, 2010.

Credit: Reuters/Robert Galbraith/Files

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SAN FRANCISCO (Reuters) - Apple Inc CEO Steve Jobs went on the offensive on Monday after a rare disappointment in sales by the iPad maker sent its shares tumbling, but even his biting words failed to reverse market sentiment.

Jobs, who has not addressed investors on an earnings call for two years, lashed out at competitors Google Inc and Research in Motion and dismissed the smaller tablets made by rivals such including Samsung and Dell.

"The current crop of 7-inch tablets are going to be DOA, dead on arrival," Jobs told analysts on the conference call. "Their manufacturers will learn the painful lesson that their tablets are too small."

Shares of Apple -- the second-largest corporation on the Standard & Poor's 500 index, after Exxon Mobil -- slid 6 percent in after-hours trading, which would be their biggest single-day loss since 2008.

Supply and production bottlenecks kept iPads, which have a 9.7-inch touch screen, from store shelves and buyers waiting weeks sometimes for their gadget. The company sold 4.19 million iPads in the fiscal fourth quarter.

"A little bit disappointing there. Street was expecting closer to 5 million units. The problem is supply, they can't make enough of them," said Gleacher & Co analyst Brian Marshall.

Analysts said sales should ramp up in the holiday quarter as Apple resolves supply hitches.

Gross margins fell short of target as iPads, whose profit margin is lower than it is for iPhones, made up a larger proportion of Apple's sales. Investors had expected more from a company that had smashed Wall Street's targets in each of the past eight quarters.

Gross margins came to 36.9 percent, below Wall Street's average forecast of 38.2 percent, despite better-than-expected components costs in the period.

"The one surprise is on the margin side. Everything else is pretty spectacular," said Gartner analyst Van Baker.

There was no disappointment in the iPhone, however, whose surging sales showed little impact from a PR debacle last summer over the device's antenna.

Apple sold 14.1 million of the smartphones, a gain of 91 percent and better than Wall Street had expected. The company said demand is still outstripping supply, with the iPhone now available in 89 countries.

Mac sales surged 27 percent to 3.9 million, at the high end of analysts' estimates. Apple Chief Financial Officer Peter Oppenheimer said the strong Mac performance was evidence that the iPad was not cannibalizing sales.

SURVEYING THE COMPETITION

Jobs noted that Apple's iPhone outsold RIM's BlackBerry in its most recent quarter. "I don't see them catching up with us in the foreseeable future," Jobs said.

And he criticized Google's Android as a "fragmented" operating system. RIM and Google did not respond to requests for comment.

In the still emerging tablet market, Jobs said there appears to be just a "handful of credible entrants," and he said price points on rival tablets won't be able to compete with the iPad, which starts at just $499.

Some analysts agreed with Jobs, and foresaw sales of the iPad, which came on the market only in April, jumpstarting next year as the gadget gets rolled out to more countries and to more mass-market retail outlets like Wal-Mart Stores.

As an indication of industry bullishness, research group iSuppli said it expects Apple to sell a whopping 43.7 million iPads next year.

"IPads were low, but I also think they had a lot of production problems getting that off the ground. So I don't think that really is a good demand indicator for iPad," said analyst Jane Snorek of First American Funds.

Apple on Monday reported a net profit of $4.31 billion, or $4.64 a share, in the fiscal fourth quarter ended Sept. 25, up from $2.53 billion, or $2.77 cents a share, in the year-ago period.

That was better than the average analyst estimate of $4.08 a share, according to Thomson Reuters I/B/E/S.

Revenue surged 67 percent to $20.3 billion, ahead of Wall Street's target of $18.9 billion.

As it looks ahead to the holiday season, Apple -- which typically issues very conservative outlooks -- forecast current-quarter earnings of $4.80 a share on revenue of $23 billion. The consensus estimate is for a profit of $5.07 a share on revenue of $22.4 billion.

Shares of Cupertino, California-based Apple slid 6.1 percent to $298.50 in extended trading, after a brief trading halt. They closed at $318.00 on Nasdaq.

(Writing by Edwin Chan; Editing by Richard Chang, Gary Hill)

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