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April 22, 2008
Apple Earnings Preview
Apple reports 2Q08 earnings after the close on Wednesday, April 23rd. I'll be covering the conference call for RealMoney.com. Here is the preview I wrote for them which was published today:
Before Tuesday's shellacking I was planning to say that the sharp upward move in Apple shares had raised the bar unrealistically high heading into 2Q08 earnings report. With some steam out of the stock, I think it is now a coin flip as to which way the stock trades off the report. One good adage passed along to me by my friend and institutional salesman JK is "Macs drive earnings, iPhone drives the multiple." Keep that in mind as you analyze the results and guidance.
One thing we know for sure is what will determine how the stock responds: guidance. Analysts are looking for a flat sequentially in the June period, in line with recent sequential patterns for the June quarter. Current consensus for the next quarter is EPS of $1.10 on revenues of $7.15 billion. AAPL probably needs to guide within 5 cents and $100 million of these figures to clear the way for the shares to move higher.
Something that could provide upside in 3Q08 is laptop sales. These have shown a strong uptick in June quarters in the past and if the multi-quarter run of 40% unit gains holds, Mac sales could drive higher than expected guidance. If management guides to flattish sequential revenues, a good question would be "Doesn’t this imply a slowing in the rate of growth of laptops? If not, then where else would offset the rising revenues from laptops?"
Also likely to have a big impact on guidance is the gross margin assumption. Apple has been very conservative about gross margin guidance since the huge jump in 2Q07 from about 30% to 35%. Since then guidance has generally been for low 30s but the actual quarters have ranged from 33.6% to 36.9%. I see little reason to assume that gross margins would contract from 2Q to 3Q based on current evidence so keep an eye on the 2Q gross margin which analysts expect to be around 34%.
Looking at the current quarter....
....consensus is calling for EPS of $1.07 on revenues of $6.95 billion. Several recent estimates have been increased above consensus. My own spreadsheet has EPS of $1.13 on revenues of $7.15 billion.
Mac sales are expected to drive EPS quarter rising to at least 2.1 million. Mac estimates have been rising so any shortfall here is going to be greeted rudely. Look for desktop growth of 30% and laptop growth of 40% with stable ASPs.
iPod and iPhone estimates are more controversial. iPod units are projected at 10 to 10.5 million but a number in the 9.5 to 10 million range would not be a surprise. Watch ASPs to see whether a surge in shuffle sales since the price cut is the reason for units to hit the high end. Last quarter, a 5% unit gain translated to a 17% revenue gain because of rising ASPs as the mix shifted to nanos and the touch. I'd expect a 1200 basis point bump for revenue relative to units again this quarter. That would sooth worries over iPod units if they fall short.
Most analysts expect iPhone units to come in below 2 million, with some estimates as low as 1.8 million. A few analysts are more bullish with numbers at 2.2 million. The recent case of the missing iPhones was interpreted differently by analysts. Trends in sales in the US and Europe may be as important as the actual figures. Of course, there will be plenty of questions about the timing of a 3G introduction and its potential impact on current demand.
The margin environment for AAPL in the quarter was favorable. Management guided to just 32% gross margins but component costs and firm ASPs suggest that a number north of 34% is possible.
Posted by Steve Birenberg at April 22, 2008 02:06 PM in AAPL
1.MICC HAD OUSTANDING EARNINGS IN ITS CONFERENCE CALL.STOCK PRICE WENT UP $11 YESTERDAY,BUT THEN DROPPED $5 IN AFTERHOUR ACTIVITIES.
2.THE MARKET IS AGAIN FALLING OFF A CLIFF AS IT APPROACHES RESISTANCE.
3.I AM NOT SURE IF THE MARKET WILL STABILIZE BEFORE 2009.
4.THE DROP IN CETV AND MICC ARE RIDICULOUS AS BOTH STOCKS HAVE EXCESSIVE POSITOINS IN CASH.IN FACT,MICC IS VOTING ON A DIVIDEND PAYMENT TO STOCK HOLDERS.WITH THE TRADERS AND HEDGE FUNDS,SPECULATION IS RAMPANT AND THERE IS OFTEN NO LOGIC IN THE MARKET MOVEMENTS ON INDIVIDUAL STOCKS.
Unless there is news, you should ignore after hours activity as often trades that were "missed" earlier in the day get posted.
I wouldn't call the market falling off a cliff. I see this as a normal pullback from a 5% move last week that brought us right to resistance at the top of the trading range. I said last week that some selling should be done at the top of the trading range. I think we will remain in this trading range for most of this year but I view that as "stable". Buy the dips and sell on strength in trading accounts.
CETV and MICC are fine. Both had participate dnicely inthe rally. The fact that MICC responded so positively to good news is a a sign that the shares will go much higher when the market breaks out to the upside. I hope for the same reaction when CETV reports next week. Have patience with both. I added to CETV at $85 and would do so again based onwhat I know now.
Posted by: Steve at April 23, 2008 09:02 AM