Apple Q4 2011 earnings disappointment attributed to iPhone transition 'hiccup'

Posted:
in AAPL Investors edited January 2014
After Apple's quarterly earnings failed to live up to Wall Street consensus estimates, some analysts have labeled the September quarter a "transitional quarter" for Apple, while remaining reassured that the first quarter of iPhone 4S sales will make up for the so-called "hiccup."



Piper Jaffray



Piper Jaffray analyst Gene Munster said in a note to investors late Tuesday that Apple's recent quarterly results were the first earnings and revenue miss since 2002. The analyst pointed out that he had expected sales of the iPhone to reach 22 million, but Apple announced just 17 million units, a sequential decrease from the June quarter.



"We see this as a disappointment, but given the strong start to iPhone 4S sales, we believe it is clear that units were pushed from the Sept. quarter into the Dec. quarter as customers waited for the "iPhone 5,"" he said.



Munster had expected first weekend sales of the iPhone 4S to reach 2.5 million, but actual results blew past expectations to top 4 million. Apple itself said during the conference call to discuss its quarterly results on Tuesday that it was confident it would set an all-time high in iPhone sales next quarter, the first of the 2012 fiscal year.



The firm also remains confident in Apple's continued earnings growth because of indications of high customer loyalty. According to surveys by the investment bank, 94 percent of iPhone owners will buy another iPhone. Munster speculates that, if 80 percent of the 40 million customers who purchased the iPhone during the 2010 fiscal year decide to upgrade next year, 30 percent of his 2012 estimate "is very solid."



He also pointed to Apple's iPad sales as "the key data point" from the quarter, as unit sales grew 166 percent year over year, comprising roughly one quarter of the company's revenue. Munster predicts Apple will sell 52 million iPads in the 2012 calendar year.



The analyst also made note of the fact that Apple's December quarter guidance is "less conservative than usual." Apple has said it expects a record-breaking $37 billion in revenue next quarter, 1 percent above the Street consensus. According to the firm, Apple has, on average, provided revenue guidance 2 percent below consensus.



"We believe Apple's Dec-11 quarter guidance is evidence of the company's confidence in iPhone 4S and iPad sales in the Dec-11 quarter," Munster concluded.







RBC



Mike Abramsky of RBC Capital Markets told investors that Apple's first miss in five years was "transitional." He also viewed the company's guidance as unusually strong. According to him, Apple may see "strong catalysts ahead."



The analyst did warn, though, that the miss could spark near term volatility in Apple's stock "pending improved investor visibility to forward catalysts," such as the iPhone 4S product cycle and strong growth in Asia.



RBC had projected $34 billion in revenue and $8.00 in earnings per share next quarter, compared to Apple's guidance of $37 billion in revenue and $9.30 EPS.



Morgan Stanley



Katy Huberty said late Tuesday that Apple's results were just a "small hiccup," adding that the pump is primed for the company to see improved revenue growth in the fourth quarter of calendar 2011. In her view, there are "no structural issues" related to Apple's performance last quarter.



"We believe the Street underestimated the degree to which September was a transitional quarter for the iPhone but with strong iPhone momentum out of the gate in October, we don?t see the light iPhone shipments as a cause for concern," she said.



After the June quarter's blowout results, analysts noticed that Apple guidance for the September quarter was unusually low. When asked about the figures, Apple Chief Financial Officer Peter Oppenheimer warned that a "future product transition" would have a material impact on revenue for the quarter. In hindsight, the assumption that the transition in question was a reference to the next-generation iPhone proved to be accurate, as customers appear to have held off on purchasing the smartphone while awaiting the rumored fifth-generation model.



Huberty also called attention to Apple executive comments that may suggest plans for lower-priced iPads and iPhones. She also noted Apple CEO Tim Cook's remark that he wasn't married to the idea of hoarding the company's cash.



The analyst did say that a "lower than expected uptick in iPad shipments was the only real "flaw"" in the quarter. She viewed sell through of 9.6 million as only a slight improvement from the 9 million in June. Huberty expects 13 million iPads in the December quarter, noting that she does not believe that Apple has lost tablet share to competitors.



Morgan Stanley has raised its price target from $470 to $480 dollars, maintaining its $50 bull case EPS estimate for calendar year 2012.



Risk-Reward Snapshot for Apple | Source: Morgan Stanley.
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Comments

  • Reply 1 of 93
    jason98jason98 Posts: 761member
    The real test will come after the initial enthusiasm of 4s sales (mostly to iPhone 3G/S upgraders) dries out.

    Most of the iPhone-4 owners will not upgrade and will wait for iPhone-5, potential newcomers will have a choice between HD/LTE android phones and iPhones with the same old dwarf screens.
  • Reply 2 of 93
    Quote:
    Originally Posted by AppleInsider View Post


    Morgan Stanley has raised its price target from $470 to $80 dollars, maintaining its $50 bull case EPS estimate for calendar year 2012.



    Ummm, that would be a negative price target raise. $80??



    My remark sounds silly, huh? A negative price target raise. What is so silly is the lack of proofreading.
  • Reply 3 of 93
    nagrommenagromme Posts: 2,834member
    An outsider estimate was made, and the reality was different. And that?s not called the analysts' first miss, it?s called Apple?s first miss?



    (P.S. Do trolls think they impact the market?)
  • Reply 4 of 93
    Quote:
    Originally Posted by nagromme View Post


    An outsider estimate was made, and the reality was different. And that?s not called the analysts' first miss, it?s called Apple?s first miss?



    (P.S. Do trolls think they impact the market?)







    : ? touché!
  • Reply 5 of 93
    Quote:
    Originally Posted by nagromme View Post


    An outsider estimate was made, and the reality was different. And that?s not called the analysts' first miss, it?s called Apple?s first miss?



    (P.S. Do trolls think they impact the market?)



    amazing, isn't it? Apple pretty soundly beat their own estimates and had strong earnings (52%) and revenue growth (38%) and it keeps being reported as a bad quarter. If only more companies had such poor quarters.
  • Reply 6 of 93
    shompashompa Posts: 340member
    Android is killing the Iphone/Ipad sales.



    The product transition that users are waiting for is the G5 Powerbook.



  • Reply 7 of 93
    nairbnairb Posts: 253member
    Of course figures were down - iPhone 4 was being sold below normal costs because of pending new release (which came later than rumoured) and consumer confidence is down leading to slowing in iPad sales, and effecting other non necessary purchases.



    If they dont rebound strongly for the next two quarters, driven by 4S sales, then that would be news.
  • Reply 8 of 93
    aizmovaizmov Posts: 988member
    Apple currently offers 3 different iPhone models for sale all have the same screen size and basic design, for 2012 Apple should consider offering two or three different iPhone sizes or else I see Apple losing market share in the long run.

    I'm not looking into getting a new Mac before 2014, I already spent a lot of money last year buying both a MacBook Pro and a Mac mini and then upgrading them this year. However, an upgradable midrange tower would get me to upgrade immediately. A Mac Pro with desktop-grade Core i7 processors instead of server-grade Xeon should be inexpensive enough to qualify.
  • Reply 9 of 93
    tylerk36tylerk36 Posts: 1,037member
    So a group of people in the financial markets says Apple had a weak quarter and we are supposed to what? Cry. Apple has what 80 billion dollars in cash. Really what company has that much cash sitting around? Who gives a crap what the analyst says. Apple is strong and will remain that way because they get it. They understand what makes us tick. We love Apple because it just works so screw the analyst.
  • Reply 10 of 93
    irnchrizirnchriz Posts: 1,580member
    Apple exceeded the guidance estimates they gave last quarter. It only delivered less than the wall street crystal ball gazers guessed at. In my book thats 'double winning'
  • Reply 11 of 93
    Quote:
    Originally Posted by Dickprinter View Post


    Ummm, that would be a negative price target raise. $80??



    My remark sounds silly, huh? A negative price target raise. What is so silly is the lack of proofreading.



    You are correct. It should have added the 4 in their but the Internet and smart phones with Twitter has turned the world into a chicken scratch form of short hand, but devoid of any of the short hand rules.
  • Reply 12 of 93
    These Wall Street guys crack me up. They are playing everybody. I'll bet many had placed bets that Apple's stock would fall, then they worked hard spreading the iPhone 5 rumors, and, when their predictions didn't bear fruit, they act as if it's Apple not performing, then they laugh all the way to the bank.



    Apple did just fine, and as they themselves had predicted. That also must bug the heck out of WS, who can't get anything right.
  • Reply 13 of 93
    uiguyuiguy Posts: 27member
    Quote:
    Originally Posted by nagromme View Post


    An outsider estimate was made, and the reality was different. And that?s not called the analysts' first miss, it?s called Apple?s first miss?



    (P.S. Do trolls think they impact the market?)



    Actually, there is some good evidence that they do.



    Providing that quantity of content required by instant and continuous news means the village idiot, once ignored, is now all of a sudden 'interesting'.
  • Reply 14 of 93
    asdasdasdasd Posts: 5,233member
    Very defensive here today. Of course the iPhone numbers were a tad bit disappointing, despite Apple's guidance ( which is always low-balled anyway). Apple actually called it correctly, they suggested a drop in iPhone sales to a product transition - most people thought that meant that they would have a hiccup in sales in the last Q as they introduced the iPhone 4S in the last Q, what they meant was that the rumours would reduce demand. So it happened.



    In any case the guidance is high.
  • Reply 15 of 93
    asdasdasdasd Posts: 5,233member
    Quote:
    Originally Posted by shompa View Post


    Android is killing the Iphone/Ipad sales.



    The product transition that users are waiting for is the G5 Powerbook.







    Apple always fails to achieve much growth the Q before a transition to a new product. All that pent up demand is coming good now, even though the 4S is only available in 7 countries. Add to that the fact that the 4S and the 3GS are showing price elasticity, and are being sold down in inventory already ( despite the imminent arrival of the 4S in more countries this month) and Apple will probably double sales of the iPhone this month. There will be little or no dip in Q2 either as the 4S wont be on all carriers until Q2.



    So iPhones > 30M. iPads > 20M this Q.
  • Reply 16 of 93
    Quote:
    Originally Posted by asdasd View Post


    Apple always fails to achieve much growth the Q before a transition to a new product. All that pent up demand is coming good now, even though the 4S is only available in 7 countries. Add to that the fact that the 4S and the 3GS are showing price elasticity, and are being sold down in inventory already ( despite the imminent arrival of the 4S in more countries this month) and Apple will probably double sales of the iPhone this month. There will be little or no dip in Q2 either as the 4S wont be on all carriers until Q2.



    So iPhones > 30M. iPads > 20M this Q.



    I think the most significant metric regarding Apple?s earnings disappointment is ?22 days?. If they had shipped the 4S 22 days earlier, they would have sold more than 21m iPhones and surpassed the Street?s numbers. Then there would have been none of this hand-wringing. Instead, the 4S revenue was pushed into the Dec. quarter. I think that (and the 14th week) is why Apple is giving surprisingly high guidance.
  • Reply 17 of 93
    In the last year they had another aggressive guidance quarter. The one where analyst disappointment occurred over missing a 6M iPad sales estimate, vs. something like 4.1 M actual. You know, the iPad to iPad 2 transition quarter. Then analysts interpreted the next quarter high guidance as Apple trying to reassure everyone all is OK. As opposed to the reality. All the "rule of large numbers", "Apple has reached its peak" discussion. Analysts like to make their own projections, and somehow, we should patently dismiss the Apple guidance because they purposely sandbag. LOL



    Let's look at the 37 B guidance. I have not examined active selling prices, etc. so will approximate based on memory/guesstimate. Hey, I am just doing my morning reading and responding immediately as if we were talking at the coffee shop. Q 01 2012:



    27 M iPhones at $700 = 18.9 B

    15 M iPads at $600 = 9 B

    5.5 M Macs at $1300 = 8.25 B

    iTunes = 2 B

    Software = 2 B (wild guess have never studied the Apple earnings in depth )



    Total > $40 B.





    Want to be as good as any analyst or blogger (indie)?



    1. Make a spreasheet with the above data.

    2. Adjust the unit sales based on your own feeling.

    3. Adjust the ASPs (prices) to something closer to what is reported by Apple. As opposed to my guesses here.

    4. Add a row to your spreadsheet for profits (use similar methods).

    5. Update your spreadsheet quarterly.





    I think this can be no more than a 15 minute homework assignment. Maybe 30 minutes the first time and 15 minutes each quarter thereafter. As an investor for the long term I mostly care about:



    1. Sustainable competitive advantage

    2. Headroom for growth

    3. Strong execution

    4. Excellent R&D.



    Market gyrations are expected. Guidance and quarterly estimates only serve the purpose of reinforcing the headroom cow growth bullet point. The beauty of Apple is the price gyrations allow an ability to acquire at lower prices over time.
  • Reply 18 of 93
    jragostajragosta Posts: 10,473member
    Quote:
    Originally Posted by nagromme View Post


    An outsider estimate was made, and the reality was different. And that?s not called the analysts' first miss, it?s called Apple?s first miss?



    Exactly. Apple didn't miss - the analysts did.



    Quote:
    Originally Posted by Nairb View Post


    Of course figures were down - iPhone 4 was being sold below normal costs because of pending new release (which came later than rumoured) and consumer confidence is down leading to slowing in iPad sales, and effecting other non necessary purchases.



    And this is a great example of why Apple tries to maintain a veil of secrecy over new product launches. People who say that folks like Gizmodo who illegally obtain pre-release information are not hurting Apple are just plain wrong.
  • Reply 19 of 93
    Apple Earnings are dependent on the iPhone. Almost half of the over all rev figure is iPhone. 22 Million is an over estimate. The 4s will not make up for this difference in Q1. A large majority of users are waiting for an iPhone 5 and Android is stealing market share.



    The initial unit sales numbers for the iPhone 4s are good but the expectation is too high. One Analyst was predicting ALL 3GS users were migrating to the 4s. Not so. There are over 18M 3GS users that could potentially migrate to a 4s but I believe the majority of those users are waiting for iPhone5.



    For those that say the analysts missed. The price of a growth stock, like Apple, is dependent on that companies projected growth rate. The stock price is reflective of these growth estimates. So when growth slows the stock price will adjust to reflect the slower growth.



    Apple is a great company with great growth potential. However, it simply cannot continue to maintain this rate of growth with "incremental" products. The question is will Apple have the vision to create new products that are game changing and deliver the growth expected?
  • Reply 20 of 93
    @andrewoliv



    Fair enough and specific. I feel like we are having the same conversation that Mutual Fund managers are having with respected analysts. Just we make a lot less $ for the effort. :-)
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