« Special Market Comment | Main | Best Case For Apple »

January 22, 2008

Apple 1Q08 Preview

Another Apple earnings report comes after the close today, so time for lots more overanalysis and outsized volatility in the usually volatile shares. Estimates have been rising as the quarter went along since it became apparent that Mac sales were booming. News from MacWorld that Leopard and iPhone sales were ahead of expectations in the December quarter raised the bar further. The only product line with any concern is iPods where there is some worry about unit volumes relative to high expectations....

....For the first quarter, the current consensus is $1.51 on revenues of $9.46 billion. This would represent EPS growth of 41% and sales growth of 33%. The high estimates I $1.77 which may give some indication of where the whisper number resides. Mac sales are expected to be around 2.4 million units. iPhones were already announced at 4 million units. iPods are expected at 24-25 million.

Variance could come from better than expected Mac ASPs, a mix shift in iPods favoring nanos and the touch at the expense of the low priced shuffle, and more high margin revenue from Leopard that expected. In addition, component pricing, particularly memory seems to have been very favorable again in the quarter after some signs early in the quarter that memory prices were firming. Finally, the financial model for the iPhone remains unknown and could provide a surprise.

For the March quarter, current estimates call for EPS of $1.09 on revenues of $6.98 billion. This would represent EPS growth of 26% and revenue growth of 33%. The sequential decline from the December quarter is in line with the last few years. The assumption that margins may fall from the year ago quarter seems conservative to me given the dramatic margin expansion over the second half of 2007.

Even though Apple shares have gotten nailed since the start of the year, I don’t think it is fair to assume the bar has been reset lower. Apple must have good results and guidance with no blips for the stock to work from any level. For Tuesday’s report I think the most likely reactions will come from iPod sales, international iPhone sales, operating margins, and Macs. I am long and would be long into the report if I were a trader. Obviously I expect upside pretty much across the board and acceptable guidance built off the strong momentum in Macs.

Posted by Steve Birenberg at January 22, 2008 10:13 AM in AAPL