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Market watchers reaffirm faith in Apple as new products shrink projected margins

post #1 of 35
Thread Starter 
Though Apple expects its margins to shrink in the holiday quarter as the company goes through an unprecedentedly large product transition, Wall Street watchers remain confident in recommending investors buy AAPL stock.

Apple reported its fourth quarter earnings on Thursday, revealing it sold 26.9 million iPhones, 14 million iPads and 4.9 million Macs in the September frame. Looking ahead to the December quarter, Apple executives noted that the company's recent product introductions have higher costs than their predecessors, which will drive down gross margins.

Following Apple's report, Wall Street analysts reacted positively, saying they expect Apple to have a blockbuster holiday quarter with h2 sales of the iPhone 5, iPad mini, new Macs and more. Below is a rundown of their takes:

Canaccord Genuity



As tracked by Philip Elmer-DeWitt of Apple 2.0, Michael Walkley was the most accurate analyst in predicting Apple's September quarter, with revenue and earnings per share estimates that were off by just 0.57 percent from the actual numbers. Professional analysts considerably outperformed independent market watchers, who proved too bullish.

iPhone 5


Walkley said that Apple's lower-than-expected margin guidance for the following quarter is disappointing, but it presents an opportunity for investors to buy in. He has reiterated his buy rating for AAPL stock with a price target of $800.

"Despite lower potential gross margin due to the record ramp of new products, we believe Apple's December quarter guidance could prove conservative given their strong product portfolio and our checks indicating very strong global demand," Walkley said.

Piper Jaffray



Gene Munster said Apple's September results demonstrated the strength of Apple's iPhone, as the handset exceeded market expectations of 25.3 million units.

For the December quarter, Apple's guidance is slightly better than the market expected, but projected earnings are worse. Munster noted that's a result of 80 percent of Apple's December product sales being upgraded in the past six weeks, marking the company's largest product transition quarter ever.

Munster expects that following the transition period, Apple's margins will rebound to their normal levels in the March quarter.

iPad mini


RBC Capital Markets



There was "nothing mini" about Apple's fourth quarter of fiscal 2012, said Amit Daryanani. He feels Apple's guidance for the December quarter "bakes in a healthy level of conservatism."

Like Munster, Daryanani sees Apple's margin-related issues as "transitory." He expects they will abate over the next one to two quarters.

For now, he recommends investors continue to accumulate shares of AAPL, focusing on the company's expected h2 holiday sales, ramping up of the iPhone 5 in China, long-term margin profile, and the potential for a full-fledged Apple television set.

Evercore Partners



Rob Cihra correctly projected Apple's iPhone sales for the September quarter. For the holiday period, he sees Apple selling 49 million iPhones, which would be 82 percent quarter over quarter growth, and a 32 percent increase from the same period last year.

Even with a blockbuster quarter and 49 million projected iPhone sales, Cihra believes Apple still won't be able to meet consumer demand for its latest handset.

"Apart from its $329 iPad mini, Apple has not really lowered the price of any new product," Cihra said, "so we don't see pressure from some new aggressive pricing strategy, rather believing (gross margins) should recover as yields ramp."

MacBook Pro


ISI Group



For Brian Marshall, the positives outweigh the negatives from Apple's September quarter. Specifically, he's bullish on iPhone sales and the potential of the iPad mini.

He believes the investment community is "wrapped around the axle" on what he called "tertiary details." He thinks investors should concentrate on the big picture, which is that demand for Apple products is currently greater than supply.

Morgan Stanley



Katy Huberty believes Apple "handed investors a perfect combination of a bullish demand view" along with an earnings per share reset that will set the company up to return to its "beat and raise" story.

She noted that Apple Chief Executive Tim Cook and Chief Financial Officer Peter Oppenheimer "sent a bullish message on demand" during their earnings conference call on Thursday.

As for the low margin guidance, Huberty sees a silver lining, as calendar year 2013 is shaping up as a margin expansion year, from 37 percent in the fourth quarter of calendar 2012 to a forecast of 41 percent in the first quarter of 2013.

iMac


J.P. Morgan



Mark Moskowitz also believes Apple has "beat and raise potential" in the cards for the first half of 2013. He believes that as the company scales its new products down the cost curve, its consolidated gross margin will move back to 40 percent or better following the December quarter.

He also believes Apple's December quarter outlook is a vintage conservative projection from the company. Apple has guided to revenue of $52 billion and earnings per share of $11.75, while Wall Street consensus is at $54.9 billion in revenue and $15.46 earnings per share.

"We believe the company is being conservative in its guidance, and we expect the gross margin to bottom in (the December quarter) as Apple ramps the new products across its product segments," he said. "We also note that the (December quarter) will have 13 weeks, versus 14 weeks in the year-ago quarter."

Needham Research



Apple's all-new product lineup unveiled in the past six weeks sets the stage for"a quarter unlike any in the past," Charlie Wolf said. He believes Apple's December quarter guidance is a reflection of the company's ability to supply products, not demand for them.

"We would not be surprised if Apple exits December with material backlogs in both iPhone 5 and iPad," he said.

Looking toward 2013, he assumes, like others, that Apple will progressively restore its gross margin from the anticipated lower margins in the December quarter.

JMP Research



Alex Gauna, known for being bearish on AAPL stock in stark contrast to his peers, has maintained his "market perform" rating. He said the positives of Apple's "resilient growth and profit generation in a tough macroeconomic environment" were "offset by further gross margin erosion as competition intensifies."

Gauna has reduced his fiscal year 2013 GAAP EPS estimate from $52.59 to $49.85, while average Wall Street expectations are at $53.30.
post #2 of 35
reaffirm

 

Is this really necessary? Did we really not know this already?

 

I can see this as something to be done if Apple's stock and earnings were as predictable as Indiana weather, but they're not. Apple's stock is basically the Sahara: "Will be hot. Continues to be hot. No rain… and hot."

 

On that note, it was 80 here yesterday. It's 50 today, and in four more days we expect snow. 

post #3 of 35

In January Apple will announce a $57 billion holiday quarter with margins almost a full percentage point above forecast and the stock price will just break through $800 in March.

 

... and analysts will say that was the last hurrah for Apple.
 

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post #4 of 35
Just so tired of all these anal.......ysts that look more like market spooks than trained objective stock analysts.

If Apple does not sell something to every other living person on the planet, every quarter, they think Apple is DOOMED.

Apple just had a 50 BILLION dollar quarter. And the anal......ysts are complaining cause it was not bigger....... In todays weak times, Apple sold over 50 BILLION dollars of stuff and its not even christmas yet. PLEASE people lets get a grip.

Just a thought.
post #5 of 35
Wait... I’m confused. I thought with every passing moment Apple is ever greedier, INCREASING their margins :p
post #6 of 35
Well, the analysts may be bearish, but the market sure isn't.
post #7 of 35

I wish Wall Street applied the same rules to Apple as they do to Amazon.

post #8 of 35
Quote:
Originally Posted by eldernorm View Post

Just so tired of all these anal.......ysts that look more like market spooks than trained objective stock analysts.

Year ____ called and wanted their stale joke back.
Edited by JeffDM - 10/26/12 at 9:51am
post #9 of 35
Originally Posted by JeffDM View Post
Year ____ called and wanted their stale joke back.

 

2009, maybe? I can't remember, either.

post #10 of 35
Quote:
Originally Posted by Tallest Skil View Post

2009, maybe? I can't remember, either.

I'll go with that.

Never mind that ______ called and wanted their ______ back is, in itself, a stale joke too.
post #11 of 35
Originally Posted by JeffDM View Post
Never mind that ______ called and wanted their ______ back is, in itself, a stale joke too.

 

So is calling that out. lol.gif

 

The only "fresh" humor left? Calling Apple software "stale".

 

Anyway, the takeaway from this is that produce is funny.

post #12 of 35
Quote:
Originally Posted by John Q. Public View Post

Well, the analysts may be bearish, but the market sure isn't.

We would do well to remember that the stock market is not rational, at the best of times. In any other occupation, if you make a prediction that does not come true, you were deemed to be wrong. In the stock market, however, the analysts were "right" and the company was "wrong" ..... go figure. The answer, of course, is that analysts can only improve their track record (and thus their fees) by shifting the blame onto "under performing companies" instead of where the blame really lies. Quite a racket they've got going, eh?

See, in the record business, you can show someone your song, and they don’t copy it. In the tech business, you show somebody your idea, and they steal it. (Jimmy Iovine)
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See, in the record business, you can show someone your song, and they don’t copy it. In the tech business, you show somebody your idea, and they steal it. (Jimmy Iovine)
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post #13 of 35

Windows 8 is the biggest market opportunity they have had since Vista. Lots of people, including OEM manufacturers, are going to be looking at and for alternatives. They already are.

 

Apple will come out a winner, Linux will come out a winner. The timing of these product launches is not a coincidence.

post #14 of 35

Apple didn't substantially beat Wall St's expectations. Now the market is punishing Apple for barely beating profit estimates. Eeek! I guess Apple's run is over. Now it's MSFT's turn to run up...

post #15 of 35

Seriously, WTF is wrong with people. iPhone sales are up 58%. 58 freaking percent. And the stock just tanked to under $600. If I had any more free cash, I would back up the truck.

post #16 of 35
Quote:
Originally Posted by AdonisSMU View Post

Apple didn't substantially beat Wall St's expectations. Now the market is punishing Apple for barely beating profit estimates. Eeek! I guess Apple's run is over. Now it's MSFT's turn to run up...

Some people have explained it as profit taking. Buy on rumor, sell on news.

If I didn't forget, if I owned their stock, I'd crunch the numbers to see if it's worth selling shares a couple days before earnings report and buying it back the day after at a lower price. I suppose that's similar to shorting stock.
post #17 of 35
Quote:
Originally Posted by TeeJay2012 View Post

I wish Wall Street applied the same rules to Apple as they do to Amazon.

Stock markets aren't showing much faith in any of the tech players, particularly those selling hardware, no matter if their profits are doubled YOY. 

 

 

"Samsung Electronics Co. said July-September net profit nearly doubled to 6.56 trillion won ($5.97 billion) from 3.44 trillion won a year earlier. Revenue for the third quarter climbed 26 percent to 52.2 trillion won (around $47B).

The company's shares fell 2 percent in Seoul after the earnings announcement. Analysts said investors are worried that the widespread adoption of smartphones in developed markets and heightened competition from rivals could squeeze profit from the lucrative smartphone business. Samsung and Apple Inc. together account for nearly half of global smartphone sales.

The South Korean company, which raked in more than half of its profit and revenue from its mobile communications business, said its Galaxy S III and Galaxy Note II smartphones will help sustain its earnings momentum in the final quarter of the year.

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post #18 of 35
Quote:
Originally Posted by JeffDM View Post


Some people have explained it as profit taking. Buy on rumor, sell on news.
If I didn't forget, if I owned their stock, I'd crunch the numbers to see if it's worth selling shares a couple days before earnings report and buying it back the day after at a lower price. I suppose that's similar to shorting stock.

Definitely know about the whole buy on the rumor and sell on the news. I didn't think this was the case...but it could be applied here I suppose. 

post #19 of 35
Quote:
Originally Posted by Gatorguy View Post

Stock markets aren't showing much faith in any of the tech players, particularly those selling hardware, no matter if their profits are doubled YOY. 

 

 

"Samsung Electronics Co. said July-September net profit nearly doubled to 6.56 trillion won ($5.97 billion) from 3.44 trillion won a year earlier. Revenue for the third quarter climbed 26 percent to 52.2 trillion won (around $47B).

The company's shares fell 2 percent in Seoul after the earnings announcement. Analysts said investors are worried that the widespread adoption of smartphones in developed markets and heightened competition from rivals could squeeze profit from the lucrative smartphone business. Samsung and Apple Inc. together account for nearly half of global smartphone sales.

The South Korean company, which raked in more than half of its profit and revenue from its mobile communications business, said its Galaxy S III and Galaxy Note II smartphones will help sustain its earnings momentum in the final quarter of the year.

 

Exactly. F*ck Wall Street and its whacko reasoning. It's the coming year which will tell.

post #20 of 35
Quote:
Originally Posted by Gatorguy View Post

Stock markets aren't showing much faith in any of the tech players, particularly those selling hardware, no matter if their profits are doubled YOY. 

 

 

"Samsung Electronics Co. said July-September net profit nearly doubled to 6.56 trillion won ($5.97 billion) from 3.44 trillion won a year earlier. Revenue for the third quarter climbed 26 percent to 52.2 trillion won (around $47B).

The company's shares fell 2 percent in Seoul after the earnings announcement. Analysts said investors are worried that the widespread adoption of smartphones in developed markets and heightened competition from rivals could squeeze profit from the lucrative smartphone business. Samsung and Apple Inc. together account for nearly half of global smartphone sales.

The South Korean company, which raked in more than half of its profit and revenue from its mobile communications business, said its Galaxy S III and Galaxy Note II smartphones will help sustain its earnings momentum in the final quarter of the year.

They may believe the market is fully saturated at this point in time. 

post #21 of 35

i truly hope we see $550/share so i can buy even more; on top of never before seen holiday quarter, brand new iPad in the spring.....i can see $900 in a matter of months, see the larger picture..
 

post #22 of 35
Quote:
Originally Posted by Gatorguy View Post

Stock markets aren't showing much faith in any of the tech players, particularly those selling hardware, no matter if their profits are doubled YOY. 

 

 

"Samsung Electronics Co. said July-September net profit nearly doubled to 6.56 trillion won ($5.97 billion) from 3.44 trillion won a year earlier. Revenue for the third quarter climbed 26 percent to 52.2 trillion won (around $47B).

The company's shares fell 2 percent in Seoul after the earnings announcement. Analysts said investors are worried that the widespread adoption of smartphones in developed markets and heightened competition from rivals could squeeze profit from the lucrative smartphone business. Samsung and Apple Inc. together account for nearly half of global smartphone sales.

The South Korean company, which raked in more than half of its profit and revenue from its mobile communications business, said its Galaxy S III and Galaxy Note II smartphones will help sustain its earnings momentum in the final quarter of the year.

 

Apple analysts worried about Samsung, Samsung analysts worried about Apple. Both companies bring in billions while growing their profits substantially in a downturn market. Sure enough both stocks fall. In three months from now, one of these two will be more of a winner than the other (hoping it's Apple), but both will be winners regardless...and the Wall St. punishment cycle will continue

post #23 of 35
Quote:
Originally Posted by AdonisSMU View Post

Definitely know about the whole buy on the rumor and sell on the news. I didn't think this was the case...but it could be applied here I suppose. 

Discerning the motivations behind a market's reaction can be tricky. A lot of it is speculation.

A lot of economics (at least used to) assume there is an overall rationality of markets even if individual players aren't rational, but that's not as true as they would like.
post #24 of 35
And Steve Sinofsky says the iPad mini price is too high for a "recreational device". Microsoft is so obsessed with this whole consumption versus creation. The fact is consumers don't care. It seems to me the majority of consumers have decided that tablets are more for consumption and they're perfectly fine with that. Microsoft is trying to create the be-all and end all product but at the end of the day it will end up being a compromised tablet and a compromised laptop. There's no way anyone is going to do serious work using that touch cover. And the Surface pro is probably not going to be the most portable device that people will want to pick up and read a book on it.
post #25 of 35

AAPL is weird.  the company itself has been on a rampage for years, is minting money, has vast reserves, and still has great potential for growth.  but the street still has it priced like a damp squib.

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post #26 of 35
Originally Posted by drow View Post
AAPL is weird.  the company itself has been on a rampage for years, is minting money, has vast reserves, and still has great potential for growth.  but the street still has it priced like a damp squib.

 

Say there's some sort of big crash. Oil speculation is disallowed or the EU collapses or even just a tech industry bubble bursting. Is it better that Apple has stayed low in any of these scenarios?

post #27 of 35
Quote:
Originally Posted by Tallest Skil View Post

Say there's some sort of big crash. Oil speculation is disallowed or the EU collapses or even just a tech industry bubble bursting. Is it better that Apple has stayed low in any of these scenarios?

It absolutely is. Btw I don't think there's a tech bubble. Devices aren't really overpriced and become more and more a part of our everyday life that for some they're almost a necessity.
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post #28 of 35
Quote:
Originally Posted by Lee Burnett View Post

i truly hope we see $550/share so i can buy even more; on top of never before seen holiday quarter, brand new iPad in the spring.....i can see $900 in a matter of months, see the larger picture..
 

 

It's a Friday. Earnings are out. AAPL dipped to $591. That was the last chance below $600.

 

$800 here we come (give it 4 months).

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post #29 of 35
Quote:
Originally Posted by island hermit View Post

It's a Friday. Earnings are out. AAPL dipped to $591. That was the last chance below $600.

$800 here we come (give it 4 months).

You really think so? I think we will have a hard time getting to a PE over 15.5, which should put us around $765.

At the same time... all the other stocks I follow (save LULU and SBUX) seem to be going up on mediocrity at best. I start to feel like the players are thinking the days of big gains are now over. Management just isn't convincing in the same way anymore.
post #30 of 35
But but but I thought Apple purposely overpriced their products so they could command huge margins? /s

What cracks me up is the Wall Street idiots who on the one hand complain about the iPad mini being too expensive and on the other whine about Apple's declining margins this quarter. How do they reconcile that?
post #31 of 35
Quote:
Originally Posted by aaarrrgggh View Post

 ....... Management just isn't convincing in the same way anymore.

Forget management. When it comes to share price, Apple is 68% owned by the institutional investor, i.e. pension funds, et. That means, with just a few fund managers and a few clicks on a computer they can achieve huge swings ..... and remember this, year end is coming up so it is in their own best interests to generate as much profits (not the paper kind) as possible. 

 

Fact: Apple is loved by the fund managers because they are almost guaranteed to go up over time, because of their huge profits and stellar performance (as a company...... so there is less risk at doing their best to drive share price down.

Fact: With dividends being paid in mid Nov. (2.65, I believe) to shareholders as of Nov.2, I think .... we will likely see prices rise until Nov. 3rd or so and then "possibly" dip so as to get one more buying point before year end and then rise after the new year to a new high. 

 

Obviously, this is just my take on things and in no way should you risk your money in my opinion. Think for yourself, please.

See, in the record business, you can show someone your song, and they don’t copy it. In the tech business, you show somebody your idea, and they steal it. (Jimmy Iovine)
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See, in the record business, you can show someone your song, and they don’t copy it. In the tech business, you show somebody your idea, and they steal it. (Jimmy Iovine)
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post #32 of 35
Originally Posted by wspjr View Post
Apple has abandoned the last of the faithful that used their MacBook Pro and MacMini's for playing games

 

Yep, because no graphics of any sort could ever be projected using the chips inside any of the five configurations of those computers.

post #33 of 35
Quote:
Originally Posted by newbee View Post

Quote:
Originally Posted by John Q. Public View Post

Well, the analysts may be bearish, but the market sure isn't.

We would do well to remember that the stock market is not rational, at the best of times. In any other occupation, if you make a prediction that does not come true, you were deemed to be wrong. In the stock market, however, the analysts were "right" and the company was "wrong" ..... go figure. The answer, of course, is that analysts can only improve their track record (and thus their fees) by shifting the blame onto "under performing companies" instead of where the blame really lies. Quite a racket they've got going, eh?

Isn't that the underlying problem with the stock market? Any company that goes into the market so people invest in it, invite exactly what Apple is getting: wild speculation.

 

Honestly, Apple is to be envied with the way analysts speculate about the company. They only talk about Apple like this because Apple has outperformed almost all expectations (even wild ones) for years. I do believe Apple has come to a saturation point though, where everyone expects insane results and forecasts accordingly. And that's what you're seeing now. Apple breaks even, so to speak. That's new, and analysts and hobbyists will adjust to this new phenomena eventually.

When a company stops chasing profit and start chasing the betterment of their products, services, workforce, and customers, that will be the most valuable company in the world.
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When a company stops chasing profit and start chasing the betterment of their products, services, workforce, and customers, that will be the most valuable company in the world.
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post #34 of 35

A lot of people seem to be stuck on the idea that the past performance of apple stock will predict the future. Dangerous in the post Steve company. I think a lot of people are waiting for new products that are not derivative.

post #35 of 35
Quote:
Originally Posted by SeaNorse View Post

A lot of people seem to be stuck on the idea that the past performance of apple stock will predict the future. Dangerous in the post Steve company. I think a lot of people are waiting for new products that are not derivative.

It depends on what you mean. What Apple products aren't derivative? Even highly innovative products have a long intellectual heritage.

It's pretty rare for a company to shake up the industry it's in as many times as Apple does, but even then, expecting a shake-up every three years is a bit much.
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