BREAKINGVIEWS - Apple's rare letdown looks more form than function

A sign for the iPhone 4S is seen at an Apple Store in New York, October 14, 2011.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Robert Cyran

NEW YORK (Reuters Breakingviews) - Apple's rare letdown looks more form than function. The company known for perfectly marrying technology with design usually manages the same elan with its finances. Under Steve Jobs, Apple like clockwork blew by expectations. The latest results, without him, missed.

It's hard to fault a $391 billion company that's still growing sales by 39 percent and earnings 54 percent. Yet Apple and sell-side analysts have for a long time danced in synchronicity based on relative, rather than absolute, figures. Subdued messages from the company led to equally subdued earnings estimates. And for at least two dozen consecutive quarters, Apple surpassed them. This time it didn't. Apple exceeded its own guidance but missed Wall Street's by 23 cents a share.

The 6 percent decline in Apple's stock in aftermarket trading seems like an over-reaction to this financial convention. By the more timeless, absolute metrics, the story is quite different.

Apple trades at 14 times the earnings it chalked up in the fiscal year that just ended. Further, Apple has zero debt and about $82 billion of cash on its balance sheet. Adjust for that and the stock trades at about 11 times trailing earnings. Assuming sales will grow by at least as much as the latest quarter, the stock looks dead cheap.

After all, many Apple aficionados delayed purchasing a new iPhone because they were waiting for the latest model. The 4S was only unveiled after the quarter ended. That slowed sales of the company's most important -- and profitable -- product.

Yet Apple, in Tim Cook's first results as the official boss, still chalked up astonishing 40 percent gross margins in the most recent quarter. That implies the company has lost little of its pricing power despite the ascent of competing smartphones powered by Google's Android. Meanwhile, Apple keeps gaining market share in computers and is accelerating at an astonishing pace in emerging markets like China.

Beyond the matters of Wall Street style, there's still plenty of substance to Apple's growth and value.

CONTEXT NEWS

-- Apple on Oct. 18 reported revenue for its fourth fiscal quarter of $28.3 billion, up 39 percent from the same period in 2010 and quarterly net income of $6.6 billion, up 54 percent. The figures were for the three-month period ended on Sept. 24.

-- The company sold 17.1 million iPhones in the quarter, a 21 percent increase over the same period in the previous year; 11.1 million iPad tablets, a 166 percent increase; and 4.9 million Mac computers, up 26 percent.

(Editing by Jeffrey Goldfarb and Martin Langfield)