Reprinted from TidBITS by permission; reuse governed by Creative Commons license BY-NC-ND 3.0. TidBITS has offered years of thoughtful commentary on Apple and Internet topics. For free email subscriptions and access to the entire TidBITS archive, visit http://www.tidbits.com/ Apple Q4 2013 Results See Lower Profits Again Josh Centers Apple [1]has yet again reported lower, yet still healthy profits for the fourth fiscal quarter of 2013. With revenue of $37.5 billion and a net profit of $7.5 billion ($8.26 per diluted share), the company's revenues are up slightly, but profit is down 8.5 percent compared to the year-ago quarter. (For a comparison against last quarter's results, see '[2]Apple Q3 2013 Results Repeat Higher Revenues and Lower Profits,' 23 July 2013.) Despite a year-over-year increase in revenue of $1.5 billion, margins are still holding back profits. Gross margin for Q4 2014 was 37 percent, roughly the same as Q3 2013, but down from 40 percent a year ago. In the quarterly call to investors, CEO Tim Cook gave four reasons for depressed margins: currency fluctuations, more deferred revenue, higher cost of products, and lower prices ' especially in the case of the new MacBook Pro and iMac computers (for more on how Apple's products could be hurting their margins, see '[3]The Case for a Low-end Plastic iPhone,' 24 July 2013, which accurately predicted the iPhone 5c). The subject of deferred revenue came up frequently in the investor call. As it turns out, giving away OS X 10.9 Mavericks, iWork, and iLife for iOS away for free is killing Apple's margins by forcing them to defer an additional $900 million in revenue this quarter. Never say Apple doesn't do nice things for its customers! The good news is that the iPhone had a record September, selling 33.8 million phones in Q4. However, sales of Apple's other products 'the Mac, iPad, and iPod, remain flat. Mac sales are down 6 percent from a year ago, which [4]isn't as bad as some had speculated, and is better than the 9 percent year-over-year decline in global PC sales. However, Cook seems confident that new iPad models will boost sales, saying that he thinks it's going to, 'be an iPad Christmas.' [5][tn_Apple-Q4-Sales-Comparison-border.jpg] Apple's cash on hand also remains flat at $146.8 billion compared to $146.6 in Q3. Over 76 percent of that is now offshore, which is apparently helping Apple keep its low tax rate of 25.9 percent, but as CFO Peter Oppenheimer hinted, could limit their share buyback program (for more on Apple's messy offshore tax dodge, see '[6]Apple Grilled Over Tax Practices,' 24 May 2013). Speaking of buybacks, Apple has been under intense pressure from billionaire mega-investor Carl Icahn to [7]blow almost all of its cash on stock buybacks. Cook seemed to have an answer for Icahn, who has insinuated that Apple could be doing more for its shareholders, in his opening remarks, mentioning that Apple had returned over $36 billion to shareholders in the past five quarters alone. Cook said a number of interesting things during the call: that the iPhone 5c is considered a mid-tier phone and was never intended to be cheap, that future versions of OS X would be free and that the iPad mini with Retina display will be released in late November 2013, though he hinted at constrained supplies. Cook said he knew how many iPads Apple could make, but the question is how high the demand will be. Just as we saw last quarter, Apple's big growth is happening overseas, in places like Russia, Saudi Arabia, and India. The iPhone saw a 25 percent increase in Chinese sales from a year ago. Once again, it looks like Apple's growth has stagnated. But when you're one of the richest companies on the planet, with the most profitable PC business, the most popular tablet (a product category it created), and with a retail chain that makes more money per square foot than Tiffany, where do you go? As always, Cook hinted at new product lines, but what else is needed? A watch? Neat, but no one's clamoring for it. A TV set? What could it do that the current Apple TV can't? And it's not like financial results from Microsoft, Samsung, and Google are knocking investors off their feet these days either. As it turns out, it truly is lonely at the top. References 1. http://www.apple.com/pr/library/2013/10/28Apple-Reports-Fourth-Quarter-Results.html 2. http://tidbits.com/article/13955 3. http://tidbits.com/article/13957 4. http://money.cnn.com/2013/10/10/technology/mac-pc-sales/ 5. http://tidbits.com/resources/2013-10/Apple-Q4-Sales-Comparison-border.png 6. http://tidbits.com/article/13792 7. http://www.theverge.com/2013/10/1/4792028/carl-icahn-pushing-tim-cook-for-150-billion-stock-buyback .