Earnings Preview: Apple to have Wall Street's ear this afternoon
Guidance, gross margin, and signs of a rebound in technology spending will be among the key topics financial experts will be paying close attention to when Apple reports results from its third fiscal quarter following the closing bell Tuesday.
On average, analysts polled by Thomson Financial expect the Mac and iPhone maker to report $1.17 in per share earnings on revenues of $8.2 billion, driven by sales of 2.4 million Macs, 9.5 million iPods, and 4 million iPhones. During the year-ago quarter, Apple reported a profit of $1.19 per share on revenues of $7.46 billion, fueled by sales of 2.496 million Macs, 11 million iPods and 717,000 iPhones.
In particular, Wall Street will be looking for signs from Apple that consumer spending on technology products is making a comeback, especially in the wake of comments from industry bellwether Intel last week, which beat estimates while providing guidance for its current quarter well ahead of analysts' expectations.
Generally speaking, the buzz on the Street is that Apple will handily beat expectations for Mac and iPhone sales, given the introduction of lower-price notebooks that drove a 16% increase in Mac sales during the month of June, and the successful launch of the iPhone 3GS. But some experts are wary that the company's aggressive pricing on its new MacBook lines, coupled with its ongoing back-to-school promotion, could come at the expense of its relatively high gross margins.
Andy Zaky, an independent analyst and AppleInsider contributor, believes those concerns are largely unwarranted. He's predicting gross margin to rise sequentially from 36.4% to 36.9%, which would be in-line with historical trends that have seen the Cupertino-based company consistently grow its margins from Q2 to Q3 over the past three years.
"I think this can be explained in part by the simple observation that the conditions determining Q2 gross margins don't substantially change from the conditions determining Q3 gross margins," he said.
"For one, there is generally a marked increase in computer sales in Q3 over Q2, propelled by the start of the back to school shopping season promotion, and computer sales tend to carry better gross margins than do iPod sales. As a percentage of total revenue, Macintosh computers generally comprise of a larger percentage of total revenue in Q3 than in Q2 while iPods tend to dominate Q2 than in any other quarter save Q1."
Zaky also notes that recognized iPhone revenue during Apple's third quarter will also have a significant impact. Namely, it's likely to dethrone the iPod as one of the company's top 2 revenue drivers for the first time in roughly six years. Since 2003, the iPod has either been the largest or second-largest contributor of Apple's total revenue.
"Another indication that gross margins will do better this quarter is Apple's unusually aggressive guidance on gross margin," Zaky added. "For Q3, Apple's management has noted that it expects gross margin percentage to reach 33%. This is the most aggressive gross margin forecast Apple has put out to date! Even more bullish than Apple's 32.5% gross margin guidance it gave for Q2. What this indicates is that Apple's managers, those who are in the best position to know how gross margins will perform, have high expectations for whatever reason."
Above are third quarter estimates from ten of the more prominent Wall Street analysts who provide coverage of Apple. Below are Zaky's own detailed third-quarter estimates.
On average, analysts polled by Thomson Financial expect the Mac and iPhone maker to report $1.17 in per share earnings on revenues of $8.2 billion, driven by sales of 2.4 million Macs, 9.5 million iPods, and 4 million iPhones. During the year-ago quarter, Apple reported a profit of $1.19 per share on revenues of $7.46 billion, fueled by sales of 2.496 million Macs, 11 million iPods and 717,000 iPhones.
In particular, Wall Street will be looking for signs from Apple that consumer spending on technology products is making a comeback, especially in the wake of comments from industry bellwether Intel last week, which beat estimates while providing guidance for its current quarter well ahead of analysts' expectations.
Generally speaking, the buzz on the Street is that Apple will handily beat expectations for Mac and iPhone sales, given the introduction of lower-price notebooks that drove a 16% increase in Mac sales during the month of June, and the successful launch of the iPhone 3GS. But some experts are wary that the company's aggressive pricing on its new MacBook lines, coupled with its ongoing back-to-school promotion, could come at the expense of its relatively high gross margins.
Andy Zaky, an independent analyst and AppleInsider contributor, believes those concerns are largely unwarranted. He's predicting gross margin to rise sequentially from 36.4% to 36.9%, which would be in-line with historical trends that have seen the Cupertino-based company consistently grow its margins from Q2 to Q3 over the past three years.
"I think this can be explained in part by the simple observation that the conditions determining Q2 gross margins don't substantially change from the conditions determining Q3 gross margins," he said.
"For one, there is generally a marked increase in computer sales in Q3 over Q2, propelled by the start of the back to school shopping season promotion, and computer sales tend to carry better gross margins than do iPod sales. As a percentage of total revenue, Macintosh computers generally comprise of a larger percentage of total revenue in Q3 than in Q2 while iPods tend to dominate Q2 than in any other quarter save Q1."
Zaky also notes that recognized iPhone revenue during Apple's third quarter will also have a significant impact. Namely, it's likely to dethrone the iPod as one of the company's top 2 revenue drivers for the first time in roughly six years. Since 2003, the iPod has either been the largest or second-largest contributor of Apple's total revenue.
"Another indication that gross margins will do better this quarter is Apple's unusually aggressive guidance on gross margin," Zaky added. "For Q3, Apple's management has noted that it expects gross margin percentage to reach 33%. This is the most aggressive gross margin forecast Apple has put out to date! Even more bullish than Apple's 32.5% gross margin guidance it gave for Q2. What this indicates is that Apple's managers, those who are in the best position to know how gross margins will perform, have high expectations for whatever reason."
Above are third quarter estimates from ten of the more prominent Wall Street analysts who provide coverage of Apple. Below are Zaky's own detailed third-quarter estimates.
Comments
Not a great day for tech stocks, but the real reaction to the earnings report will be after hours and tomorrow.
Second, I remember Apple talking about declining gross margins back at their December conference call. It turned out that the reason for this was the "brick" process used to construct the unibody laptops. Maybe improving gross margins are due to the economy of scale (used in all their laptops today except for the old MacBook).
Third, does anyone else think it is extremely unusual that Apple has a very limited MacBook line now with the renaming of most MacBook to MacBook Pros. I think the "iTablet" everyone has been talking about (for years!) will be called the MacBook.
Hmmmm.....maybe MacTablet........
First, Intel's numbers and guidance surprised the crap out of me. Just looking around it doesn't seem like that many people are buying computers right now.
Second, I remember Apple talking about declining gross margins back at their December conference call. It turned out that the reason for this was the "brick" process used to construct the unibody laptops. Maybe improving gross margins are due to the economy of scale (used in all their laptops today except for the old MacBook).
Third, does anyone else think it is extremely unusual that Apple has a very limited MacBook line now with the renaming of most MacBook to MacBook Pros. I think the "iTablet" everyone has been talking about (for years!) will be called the MacBook.
Hmmmm.....maybe MacTablet........
Well they still have the white Macbook, which is even better than before. I believe it's nearly identical in specs to one of the Macbook Pros (not sure which one.)
... does anyone else think it is extremely unusual that Apple has a very limited MacBook line now with the renaming of most MacBook to MacBook Pros. I think the "iTablet" everyone has been talking about (for years!) will be called the MacBook. ...
I sure hope it isn't called anything as dumb as "iTablet" or "iPad." That would be lame.
I think that it will either be the new MacBook as you say or that there will be two lines.
The two line theory is based on the idea that "full" devices will run desktop OS-X and have the "Mac" prefix, and that the more mobile devices will run the mobile OS-X and have the "i" prefix.
So maybe something that looks like a MacBook Air, but possibly smaller or in two diff sizes running full OS-X for the new "MacBook," and "iBook" (to go with "iPhone"), for the tablet.
Anyway, the only thing that will make this announcement exciting is if Apple shows that the "I'm a PC" ads actually made people want to buy Macs more than anything.
Watching those ads I want to go out and buy one immediately.
I predict 3 million Macs, 12 million iPods, and 6 million iPhones were sold in the last quarter.
It's always safer to make your predictions after the actual numbers are announced. Even so...
BTW, kudos to Andy Zaky -- he nailed it!
I predict 3 million Macs, 12 million iPods, and 6 million iPhones were sold in the last quarter.
Anyway, the only thing that will make this announcement exciting is if Apple shows that the "I'm a PC" ads actually made people want to buy Macs more than anything.
Watching those ads I want to go out and buy one immediately.
great products will get you excellent sale