You can't say I didn't warn you. I already told you to forget about the iPhone and focus on the iPad. Still, the iPhone segment has the greatest impact on Apple's (NAS: AAPL) results, so the disappointing iPhone sales -- and they were disappointing -- mercilessly weighed on both top and bottom lines.

Let's talk iPhone
iPhone unit sales came in at 26 million, a miss relative to Street analyst expectations of roughly 29 million. This shortfall is the major contributing factor to the top and bottom lines falling short. Revenue came in at $35 billion and net income was $8.8 billion, or $9.32 per share. Investors were hoping for more than $37 billion in sales and $10.33 per share down below.


Source: Earnings releases.

While summers tend to see nice pops in the iPad business after the new models launch, the iPhone slowdown in this case was particularly prominent and wasn't offset by the increase in iPad sales.

The last time Apple "missed" on earnings was fiscal Q4 2011, so this makes two misses within a year. That might make for some fun headlines for bears to snack on, but there's really little to be concerned about here when you dig into the reasons. Just like last time, there was heightened speculation and rumors surrounding the new iPhone model, and this is again the culprit. CFO Peter Oppenheimer said, "Our weekly iPhone sales continue to be affected by rumors and speculation regarding new products."

One notable difference is that last time only one quarter was affected by prospective buyers holding off in anticipation of new models, and this time we'll likely see two quarters with sequential iPhone slowdowns heading into the 2012 model.

In a way, you can also think of this as a function of the magnitude of the upgrade. Apple has taken Intel's (NAS: INTC) famous tick-tock model and applied it to the iPhone, seeing major upgrades every two years and incremental ones in between. Now that the jig is up and buyers now really expect a major 2012 upgrade since the iPhone 4S was incremental, you can expect the effect of delayed purchases to be similarly magnified. After all, if you were planning to buy an iPhone and suspected the biggest upgrade in two years was just four to six months away, wouldn't you wait?

Back to the Mac
The same can actually be said about Macs as well. Apple sold a total of 4 million Mac units, also shy of expectations. That represents 2% growth, which while still outpacing the broader PC market that shrank slightly, outpaced by less than normal.

This can also be tied to speculation over new models, as well as context of the year-over-year comparison. CEO Tim Cook mentioned that last year Apple updated its notebook lineup in February, spurring sales throughout the June quarter. In contrast, Apple updated its notebook lineup this year in June with just three weeks left in the quarter. There was also speculation (that turned out accurate) that the notebooks would see the biggest upgrade in several years and would feature Intel's newest Ivy Bridge chips.

Right on cue, Apple unveiled a redesigned MacBook Pro with Retina display and Ivy Bridge processors. On top of that, the first batch of these notebooks sold out quickly, while continued demand subsequently pushed shipping times back to three to four weeks. That pushes those sales into the next quarter. Even now, Cook acknowledged supply remains constrained for these Retina models and expects demand to balance in August.

Something you really have to see. And touch.
The iPad was the only area that bested estimates, with unit sales popping 84% to 17 million. Analysts would have been happy with just 15.7 million. The education market for iPads was particularly strong, thanks to the $399 iPad 2, with nearly a million tablets sold to educational buyers. Apple now sells twice as many iPads as Macs to educational institutions.

That $399 price is also putting downward pressure on average selling prices, or ASPs. I fully expected iPad ASP to fall from $559 last quarter to below $550, this figure ended up at $538. The iPad business is now up to nearly $32 billion in trailing-12-month sales.

In the iPad department, it wasn't quite a "blowout," but it was definitely a strong quarter.

The Middle Kingdom
Greater China continued to boom, with sales in the region jumping 48% to $5.9 billion. iPhone sales in mainland China more than doubled, and Apple didn't launch the new iPad until this month after it resolved its trademark dispute.

Source: Earnings conference calls.

The iPhone strength was partially thanks to adding China Telecom (NYS: CHA) as a second official carrier in March.

Bits and pieces
A few other interesting data points:

  • Up to 150 million iCloud users.
  • 410 million cumulative iOS devices sold.
  • $5.5 billion cumulative developer payout, implying $2.36 billion cumulative cut for Apple.
  • 1.3 million Apple TVs sold during the quarter, up 170% -- 4 million sold so far this fiscal year.
  • Average revenue per retail store was $11.1 million.
  • $117.2 billion in cash and investments on the balance sheet.
  • Estimated 47% share of all domestic notebook revenue in June.
  • $2.65 per share dividend payable Aug. 16 -- 28% payout ratio this quarter.

Still cheap
Overall, the quarter could have been better, but not meeting analyst expectations doesn't equate to "bad." The fundamental drivers of the business are as strong as ever, and the one product family that really matters at this time of the year shone bright.

Interestingly, Cook dodged a question on moving down market to respond to Google's (NAS: GOOG) Nexus 7, but management is extremely confident in the product pipeline. That pipeline likely includes a smaller iPad Mini and redesigned iPod Touch, and definitely includes a major iPhone upgrade. There's even an off chance we'll see a TV set, but I think that's more likely to be next year.

Piper Jaffray's Gene Munster even expects this fall to see the biggest product upgrade cycle in the "history of man." The short-term reaction will likely be negative, but I see it as a buying opportunity heading into some major product releases. Shares reached as low as $565 in after-hours trading, and backing out the $126.14 in cash puts you at 10.3 times earnings ex-cash.

Pretty cheap if you ask me.

Opportunistic bulls might be getting a gift in a chance to get in now while the gettin's good. But don't buy in until you read up on Apple in The Motley Fool's brand new premium research service. It's all about the iPhone maker, and comes with a full year of updates from our top technology analyst.

The article Apple Gives Bears a Snack originally appeared on Fool.com.

Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Intel, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Google, Intel, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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