Today: Apple (AAPL) issues earnings report that shows record iPhone sales but declining profits, stock price moves higher. Also: Polycom and Juniper CEOs leaving, Cisco (CSCO) makes $2.7 billion security acquisition.
The Lead: Apple earnings give stock a bounce despite declining profits
Apple announced its second consecutive quarter of declining profits Tuesday, but the Cupertino company still beat analysts' expectations while posting record iPhone sales, helping bolster its beleaguered stock price in after-hours trading.
Apple, the largest Silicon Valley tech company in terms of revenue in 2012, reported net sales of $35.3 billion in the second quarter of 2013, with profits totalling $6.9 billion, or $7.47 a share. While Apple's revenue mark was a slight gain from the same quarter a year ago, profits suffered a steep drop-off of nearly 20 percent after the company posted earnings of $9.32 a year ago.
Still, CEO Tim Cook focused on the positive side of Tuesday's report, saying the company's news release, "We are especially proud of our record June quarter iPhone sales."
Apple did sell 31.2 million iPhones in the three-month period, but the popularity of the iPhone 4 and 4S models pushed down the smartphone's average sales price. The iPhone accounts for more than half of Apple's revenues, and sales of less-expensive models helped shrink the company's gross margin from 42.8 percent in the year-ago quarter to 36.9 percent.
The number of iPhones sold easily surpassed analysts' estimates, however, helping revenues and profits do the same and cheering some who had been doubting the continuing growth of the smartphone market.
"The iPhone number should provide some comfort to investors who were worried about smartphone demand. That's one of the reasons the stock is up. Expectations were not strong for this quarter," Cross Research analyst Shannon Cross told Reuters.
By defeating expectations, Apple buoyed its stock price, which had declined more than 40 percent from highs of more than $700 set at the time of the iPhone 5's debut. After shares closed with a 1.7 percent decline at $418.99, they moved more than 4 percent higher to eclipse $440 in after-hours trading.
"Expectations of Apple's growth have been reset to reasonable levels," Capital Advisors president and Apple investor Keith Goddard explained to Bloomberg News. "It's a good sign that the company can navigate through a period of slow innovation, and not disappoint the Street anymore."
Investors and analysts still want to see new innovation from Apple, however, and Cook continued to tease new advances from the tech giant Tuesday, saying in the company's news release, "We are laser-focused and working hard on some amazing new products that we will introduce in the fall and across 2014."
Polycom, Juniper announce CEO departures in busy Silicon Valley earnings day
Apple wasn't the only Silicon Valley tech company to release earnings Tuesday, and two firms announced changes at their helms at the same time.
San Jose teleconferencing firm Polycom announced that its CEO, Andrew Miller, had resigned after an audit showed irregularities in his expenses. The company installed board member Kevin Parker as interim CEO and reported earnings of 3 cents a share on revenues of $345.2 million, both slight decreases from the year-ago quarter.
Juniper Networks also announced the resignation of its CEO, though in less dramatic fashion: The Sunnyvale company said its leader for the past five years, Kevin Johnson, is retiring, but will stay on until a successor is found. The Cisco Systems rival's earnings showed that Johnson is attempting to leave on a strong note, as Juniper reported profits of 19 cents a share on revenues of $1.15 billion, both figures showing growth from the year-ago quarter. Shares gained 2.8 percent to $21.34 in regular trading, then dropped a little more than 1 percent in late trading.
Growth at Palo Alto software company VMware was also strong, with profits growing 28 percent year over year to 57 cents a share and revenues increasing 11 percent to $1.24 billion. Investors immedaitely responded, sending the comapny's stock up more than 10 percent in after-hours trading after shares closed with a 2 percent increase at $71.28.
Electronic Arts (ERTS) also experienced an after-hours stock boost after its earnings report, which showed profits of 71 cents a share on revenues of $543 million, with profits gaining and revenues decreasing. The Redwood City company continues to lose money when factoring in one-time costs and deferred income, but its numbers beat forecasts and shares gained more than 6 percent in late trading after closing with a 0.8 percent drop at $23.83.
Silicon Valley's semiconductor industry continued to sink, with San Jose's Altera and Miplitas-based Linear technology posting year-over-year decreases in profits and revenues: Altera earned 31 cents a share on revenues of $421.8 million, Linear earned 43 cents a share on revenues of $327.3 million. San Jose web-video company Harmonic posted a loss of 3 cents a share, the same as the year-ago quarter, and a slight revenue dip to $117.1 million.
SV150 market report: Cisco acquisition boosts security companies, Netflix falls
Stocks struggled Tuesday, with only the Dow Jones industrial average gaining among the three most prominent stock indexes, and tech stocks suffered the brunt of the damage as the Nasdaq dropped 0.6 percent and the SV150 declined 0.7 percent.
Tuesday's raft of earnings report overshadowed Cisco's largest acquisition of 2013, with the San Jose networking giant announcing its long-awaited security acquisition by buying Sourcefire for $2.7 billion. The move allows Cisco to offer more security to its networking customers, who are worried about increasing cyberattacks both domestic and foreign, and could signal a wave of deals for security companies from large companies like Juniper and IBM, analysts said. Cisco shares decreased 0.6 percent to $25.56 as analysts balked at the 29 percent premium it paid for Sourcefire, but Fortinet rose 4.8 percent to $21.43 as investors looked for possible future security acquisitions.
Netflix (NFLX) dropped 4.5 percent to $25.26 as investors dropped the stock after the Los Gatos company's earnings report showed smaller-than-expected subscriber growth. Ruckus Wireless dropped 1.6 percent to $13.97 after acquiring an indoor-navigation company, and Facebook gained 0.3 percent to $26.13 after ComScore reported mobile users spent twice as much time on the Menlo Park company's apps in the second quarter.
The SV150 index of Silicon Valley's largest tech companies: Down 8.84, or 0.7 percent, to 1,250.72
The tech-heavy Nasdaq composite index: Down 21.12, or 0.59 percent, to 3,579.27
The blue chip Dow Jones industrial average: Up 22.19, or 0.14 percent, to 15,567.74
And the widely watched Standard & Poor's 500 index: Down 3.14, or 0.19 percent, to 1,692.39
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, the Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.