The world's most valuable technology company sold a record 51 million iPhones in the quarter, but that was shy of the 55 million or so analysts had expected, reflecting intense competition from arch-foe Samsung Electronics (005930.KS) during the crucial period.
The company forecast sales of $42 billion to $44 billion this quarter, which investors anticipate will be brisker than usual because of its recently sealed deal to sell iPhones through China Mobile Ltd (0941.HK), the country's No. 1 carrier. Wall Street was expecting $46 billion, on average.
The March quarter is especially important because of the China Mobile deal and the initial launch in that region. So the lower-than-expected revenue guidance was a troubling sign.
"The report for the December quarter was fine, but the real problem is the forecast for the March quarter," said Brian Colello, an analyst at Morningstar, Inc. "The revenue certainly appears to be a shortfall."
That long-awaited China deal had been expected by analysts to tack on more than 11 million units of new iPhone sales in fiscal 2014, starting with the typically sedate March quarter.
The company on Monday recorded sales of $57.6 billion in its December or fiscal first quarter, versus expectations for about $57.5 billion. First fiscal quarter earnings were $14.50 a share, compared to Thomson Reuters I/B/E/S estimate of $14.07.
Chief Financial Officer Peter Oppenheimer told analysts on a conference call the March-quarter revenue outlook reflected negative effects from currency rates with a stronger U.S. dollar and more balanced levels of demand and supply for iPhones at the start of 2014 than a year earlier, when demand outstripped available inventory.
"After showing modest signs of improvement, we're back to a no-growth outlook," said JMP Securities' Alex Gauna. "It's something Apple needs to find an answer to... If it can't prove that it's going to be a growth story again, the valuation is too high."
GRAPHIC-Apple by the numbers: link.reuters.com/ryg46v
In the December quarter, Apple recorded a net profit of $13.07 billion, flat from a year ago. Its gross margins came in at 37.9 percent, roughly in line with expectations.
But it was the iPhone sales and revenue outlook shortfall that drew attention, given many on Wall Street had high expectations heading into Monday's results.
Apple continued to draw investor scrutiny over sales in ultra-competitive China, its No. 2 market but a drag on revenue and margins in past quarters. The iPhone maker has been ceding ground to Samsung and other rivals there, but investors hope its tie-up with the country's dominant mobile carrier will help reverse its fortunes in the world's largest cellular arena.
In the closely watched greater China region, which includes Hong Kong and Taiwan, revenue jumped 29 percent from a year earlier to $8.84 billion, bolstered by strong iPad sales and the iPhone's global launch in September, when China was included among launch countries for the first time.
Company executives did not talk about iPhone unit sales in the world's No. 2 economy. But intense competition not just from Samsung but also lower-cost, local rivals like Huawei and Xiaomi is impeding its progress.
In the less competitive tablet arena, Apple sold a record 26 million iPads globally in the quarter, in line with Wall Street estimates. Oppenheimer told Reuters the company more than doubled sales of the tablet in mainland China during the December quarter, helping drive that milestone.
Longer term, investors continue to hope that Apple, which last came out with a revolutionary new device - the iPad - in 2010, has something up its sleeve for 2014. Speculation currently revolves around a smartwatch or even a long-rumored TV product. Others say Apple can use its huge iPhone and iTunes base to get into mobile payments or advertising.
"What we need to see from them is some sort of new product development and it would be likely in the area of software, mobile payments and advertisements that would get us thinking that there is an opportunity for accretion," Gauna said.
"Hardware can only go in one direction and that's flat or down. It has to be something in the innovation space and they have a lot of things they can do."
(Additional reporting by Malathi Nayak in San Francisco, writing by Edwin Chan; Editing by Cynthia Osterman)