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January 25, 2012

Another Blowout from Apple Supports Mobile Broadband Theme

Apple continues to amaze. Relative to expectations this is one of the best quarters I ever remember by any company. Damn, I am pretty certain I wrote that about Apple previously! In calendar 2011, Apple earned $35 a share. Guidance for the March quarter is up 32% and is probably conservative. The company could earn $45 per share in 2012. By the end of the year, cash per share will be near $130-140. Subtract that from this morning’s price of $450 and you get $320 and you still have an absurdly cheap stock at 7-8 times earnings. $500-600 is a very reasonable 2012 target for the shares.

The story at Apple is iOS. 37 million iPhones. 15 million iPads. 15 million iPods that are mostly touches. iOS is mobile broadband. It defines and leads the experience. Even if this growth came somewhat at the expense of Android last quarter, Apple’s health is the greatest testament to the mobile wireless broadband theme.

Mobile broadband is a key theme for Northlake’s individual stock selection. Recent purchases of Qualcomm (QCOM) and EMC Corporation (EMC) play right into this mobile broadband. QCOM chips power many high end smartphones, including from Apple. EMC data storage solutions enable smartphones, tablets, and laptops to access massive databases of content, information, and applications.

For more analysis on Apple’s latest earnings belo the Twitter comments I posted live during the conference call. The tweets are listed in chronological order from the start of the call to the end.

AAPL amazes again. EPS headed toward $45 for calendar year 2012. By this time next year AAPL has $140 in cash. 10X $45 EPS is $450+$140=$590. Still way too cheap.

Everything good. Even the supposedly dying desktop. iOS devices a total blowout. New iPad and iPhone 5 still to come this yr.

Guidance seems to imply 43% gross mgn, down 170 basis points. if iPad3 ships total guidance will be too low again as usual.

Inventories look good coming into March Q. iPhone below target. IPad in line. Adds visibility to guidance.

Guidance in line with Street on rev, better on EPS. For AAPL that is a guide up. Rare occurrence. Good old fashioned beat and raise.

$AAPL Starting Q&A. Looking for iPhone color on units guidance. Seems 20-25 million based on my spreadsheet. China just shipping 4S this Q.

"actively discussing uses of cash" Cook differs from Jobs here. Expect buyback or dividend this year me thinks. Another +.$AAPL China" "demand there has been staggering." No China shipments in Dec Q? That is what he said I think. If so, guidance gone be low.

positive comments on components. Supply > demand. Explains gross mgn guidance. Still down 270 bps seq on US$, one times, sales lev.

Half Dec Q gross mgn upside one time in nature. Sales lev and mix shift toward iPhone for rest. Makes gross mgn guidance impressive.

See iPad as different product category from Kindle. Multifunction vs. Limited Function.

Good Q on seq decline in gross mgn guide. Last 3 yrs was up 200 bps. With mgt explanation implies flattish. Could be source of upside.

Lots of questions about cash balance plans. Supply chain, acquisitions, and "otherwise."

85 million signed up for iCloud so far. Very important as "strategy for next decade."

130,000 points of sale for iPhone. "Nothing to announce today" on China expansion. China extremely important. Implies to expect more.

seq rev guidance: 1. extra week in Dec 2. has Xmas-NY week last yr 3. increased iPhone inventory yr ago 4. 4S channel fill 5. US $

acquisition strategy: bring in talent, engineering, technology. Seems to rule out large deal.

Good q on refresh rates. Accelerating? In Enterprise one product pulling others but Q is for consumers not skipping generation.

Call over. Stk hitting high while call occurs. Well deserved. $600 not a stretch for 2012. $500 should be now. Valuation crazy low.

Disclosure: Google, Apple, Qualcomm, and EMC are net long positions in the Entermedia Funds. Texas Instruments is a net short position in the Entermedia Funds. The Entermedia Funds are long/short equity hedge funds focused on media, entertainment, communications, and related technologies. Steve Birenberg is co-portfolio manager of Entermedia, owns a stake in Entermedia’s investment management company, and has personal monies invested in the Funds. Google, Apple, Qualcomm, and EMC are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve is sole proprietor of Northlake, an SEC registered investment advisor.

Posted by Steve Birenberg at January 25, 2012 09:11 AM in AAPL