Wall Street on Apple's 'uneventful' June quarter: Excited by margins, concerned about guidance

Posted:
in AAPL Investors edited July 2014
Though Apple's June quarter results were slightly below Wall Street expectations, investors expressed greater concern over the company's guidance for the current September quarter, but they were also pleased by improving gross margins, chalking up the results as a mixed bag.


The New York Stock Exchange, credit Carlos Delgado via Wikipedia.


Analysts are largely showing faith in Apple's product cycles, expecting big things from the company this fall, including new iPhones, iPads, Macs and even a mythical "iWatch." Below, AppleInsider offers a roundup of analyst reactions to Apple's June quarter results.

Piper Jaffray

Analyst Gene Munster characterized Apple's June quarter as "uneventful," with revenue of $37.4 billion coming in slightly below expectations. He, like many others, was pleased with the company's gross margins at 39.4 percent, an achievement as the iPhone's percentage of total sales dropped from 57 percent in March to about 53 percent in the June quarter.

Munster also noted that Apple's lower-than-expected guidance for the September quarter suggests that the next iPhone could launch a little bit later than expected. He now predicts that the so-called "iPhone 6" could debut on the last Friday of September, the 26th.

Apple


"This means Apple will only benefit from 5 days of iPhone 6 sales vs. 12 in our prior expectation," Munster said.

Munster has maintained his price target of $105, which he noted does not include projections for new product categories such as a so-called "iWatch."

RBC Capital Markets

To analyst Amit Daryanani, Apple's June quarter was both good and bad, coming in "soft" on sales but beating earnings per share projections. As for the company's lower-than-expected September quarter guidance is likely indicative of a sales "air pocket" ahead of the anticipated "iPhone 6" launch.

But Daryanani also noted that last year Apple guided its September quarter sales to be flat sequentially in comparison to its June results, while in 2012 September quarter guidance was down 3 percent sequentially. This year, however, Apple's guidance implies 3 percent quarter over quarter growth.

For this reason, he has a much different take than Munster: Daryanani believes that the numbers suggest that Apple could launch its next iPhone earlier than expected, or perhaps debut a new product in the quarter.

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J.P. Morgan

Analyst Rod Hall also saw Apple's fiscal third quarter as a mixed bag: The company beat expectations on revenue for the June quarter, but its revenue guidance for the fourth quarter was a miss. And while gross margin for the June quarter was strong, its margin guidance for the next quarter was also lower than expected.

Hall also characterized iPhone sales for the June quarter as "slightly weak," while the iPad was a complete miss.

Apple's big boost in the quarter came from Mac sales, which came in better than most on Wall Street anticipated.

J.P. Morgan has maintained its "overweight" rating for AAPL stock, with a price target of $108.

Morgan Stanley

Katy Huberty believes Apple's better-than-expected gross margins for the June quarter were the highlight of the three-month span for the company. She said the company's success has removed the "bear case" for margins moving forward.

She believes Apple's margin improvements were a function of lower warranty expense and favorable component costs. Looking forward, she expects higher margins on the next generation iPhone, along with an anticipated "iWatch" and continued App Store growth, to help margins even further.

Mac sales blew past Huberty's forecast by 19 percent, or almost $1 billion in total sales. That offset the iPad, which came in about $800 million below her expectations.

And while the iPhone grew a healthy amount, its 13 percent year over year growth was still lower than the 15 percent she had forecast. She said that was in part due to higher value-added tax, as well as new regulatory guidance in Japan.


Evercore

Reiterating his "overweight" rating and $115 price target, analyst Rob Cihra said that Apple's growth is now on track to reaccelerate heading into the fall. He believes investors should buy in ahead of the debut of new iPhones, which he believes will expand sales with larger screen sizes.

If Apple's growth were to reaccelerate, Cihra admitted that the company would be "pushing the law of large numbers." He sees Apple's revenues growing 11 percent year over year in fiscal 2015, driven by larger iPhones, a new "iWatch" product lineup, and ongoing App Store growth.

In the shorter term, Cihra sees Apple selling 37 million iPhones in the September quarter, before jumping to a whopping 62 million total sales in the December quarter, which would be a year over year increase of 22 percent.

Smart Cover

BMO Capital Markets

Analyst Keith Bachman has particularly high hopes for Apple's December quarter. He expects that a 5.5-inch next-generation iPhone will have greater availability in the fall, which would help boost the company's margins at the close of 2014.

Looking to fiscal 2015, Bachman has boosted his forecast for iPhone sales from 172 million units to 179 million, while he sees earnings per share reaching $7.34 for the 12-month period. He also expects that the average selling price of an iPhone will reach $633 next year.

BMO has raised its price target from $98 to $106, and the firm has maintained its "outperform" rating.

Wells Fargo

Though iPhone sales and average selling price came in below what analyst Maynard Um expected, he said those numbers were somewhat offset by an unexpectedly strong quarter for the Mac. Apple sold 35.2 million iPhones in the quarter, up nearly 13 percent year over year, while the 4.4 million Macs it sold were up nearly 18 percent from last year.

"With the final quarter before the new product launches out of the way, the anticipation of new product demand will, in our opinion, determine the direction of the stock," Um wrote.

The analyst has been somewhat sour on shares of AAPL as of late, and has maintained his "market perform" rating with a valuation range of $86 to $96.

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Cowen and Company

Analyst Timothy Acuri saw it as a "solid quarter" with "good enough guidance." He believes Apple's September quarter guidance is conservative, as Acuri thinks an "iPhone 6" with bigger screen size options has a "huge pool of upgrade candidates."

As for the iPad, he said the touchscreen tablet is now Apple's "glaring weak spot in the lineup." He thinks Apple's newly announced partnership with IBM could help drive enterprise penetration in the long-term.

Cowen and Company has maintained its "outperform" rating for AAPL stock with a price target of $106.

ISI Group

Brian Marshall is waiting for "the mother lode of all upgrade cycles" from Apple, and he believes now is the time for the company to unlock the value of its ecosystem. He said Apple's services, including iTunes, iCloud and the App Store, will play a major role in winning new users when hardware upgrades arrive this fall.

"We believe the power of these assets is about to be unlocked when AAPL releases a larger-display iPhone later this quarter," Marshall said. "In our view, this is likely to both entice Android users back to the iPhone and drive massive upgrades in the installed base."

ISI has maintained its "buy" rating with a price target of $105.

Macquarie Securities

Analyst Ben Schachter is focused on apps and the anticipated "iPhone 6." He's bullish on the next iPhone in the near-term, while he believes Apple's ecosystem of apps will drive upside into the future.

Schachter highlighted Apple's iTunes, software and services business, in which he estimates application sales were up between 35 and 40 percent in the June quarter. With high margins, he believes the total iTunes, software and services business could have accounted for as much as $2.5 billion, or 25 percent of Apple's operating profit.

Overall for the June quarter, Apple's revenue came in slightly lower than he expected, while gross margin was stronger. Macquarie Securities has reiterated its "outperform" rating and raised its price target to $102.
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Comments

  • Reply 1 of 88
    Right-on comment.

    Amazing how analysts did not focus on this sandbagging by CFO %u2026.!!

    What if there was no upgrade of the phone this quarter - %u2026. he had to come up with something that is silly to keep expectations low.

    By around 9/1 or so we will hear of the product announcement event, Event will be shortly after that, and sales for around 2 weeks in September. HUGE SALES with the phone.

    Only way not to reflect what Apple is expecting in the numbers is this wildly negative "what if" - this conference call shows that Apple expects blow-away awesome sales by assuming no new product!!

    As investors digest the CFO sandbagging comment - expect the stock price this week to drift towards $100 %u2026. and $100 plus within the next 1-2 weeks
  • Reply 2 of 88
    pmzpmz Posts: 3,433member
    No one told Apple to once again release nothing in the first 9 months of the year and ride the coat tails of last year's products for this year's revenue.

    My own outlook on them is dismal. AppleTV and iWatch initiatives are not going to materialize this year, and frankly that's an embarrassment. The old Apple released more quality products in a calendar year.
  • Reply 3 of 88
    Quote:
    Originally Posted by pmz View Post

    No one told Apple to once again release nothing in the first 9 months of the year and ride the coat tails of last year's products for this year's revenue.



    My own outlook on them is dismal. AppleTV and iWatch initiatives are not going to materialize this year, and frankly that's an embarrassment. The old Apple released more quality products in a calendar year.

     

    Hmmm — and how much profit did you miss out on with the rise of Apple's stock in the last 9 months? Now THAT's embarassing!
  • Reply 4 of 88

    "This means Apple will only benefit from 5 days of iPhone 6 sales vs. 12 in our prior expectation," Munster said.

     

    After guessing incorrectly by a wide margin how iPhones Apple might sell in over the initial Friday, Saturday and Sunday the iPhone 5S/C were available for purchase, Gene actually had the audacity to claim Tim Cook lied about iPhone 5S/C sales and that iPhones were collecting dust on store shelves in back rooms. iPhones collecting dust! Really?

     

    Oh well, at least Gene has been quiet about expecting an Apple television set.  :-)))  

  • Reply 5 of 88
    I always say that any truly knowledgable analyst is going to keep their advice to themselves, or to their employer. I think that's why the ones who speak to the public almost never get it right.
  • Reply 6 of 88
    jungmarkjungmark Posts: 6,547member
    pmz wrote: »
    No one told Apple to once again release nothing in the first 9 months of the year and ride the coat tails of last year's products for this year's revenue.

    My own outlook on them is dismal. AppleTV and iWatch initiatives are not going to materialize this year, and frankly that's an embarrassment. The old Apple released more quality products in a calendar year.

    Yup. Typical dumb analyst talk.

    Who knew that $37 billion would be "uneventful".
  • Reply 7 of 88
    rob53rob53 Posts: 1,887member

    Can anyone show me another company who's quarterly revenue was greater than $37.4B with a net profit of $7.7B? Add to this 35M real smartphones, not those throwaway phones that keep being added to Samsung's and other's statistics. Even their $1.32B in accessories blows my mind since these are cable, adaptors, and cases. Top it off with margins of 39%, something I bet no other computer company can even dream about. Why are these not good enough? Why do they always nitpick on little things? I just have to laugh about the financial industry spawned by Apple's success. It's like the real estate market at its height. Way too many realtors messing things up. Now it's the analysts turn to mess things up. Apple is a great company with great products run by great people. Years ago, investors would have invested for the long term and seen great results. Now just being a great company turns you into a shooting gallery, where brokers take turns banding away at you trying to make their small commissions many times a day by buying, then selling, then buying again, each time generating money for them but messing with my long term investment.

  • Reply 8 of 88
    SpamSandwichSpamSandwich Posts: 29,485member
    rob53 wrote: »
    Can anyone show me another company who's quarterly revenue was greater than $37.4B with a net profit of $7.7B? Add to this 35M real smartphones, not those throwaway phones that keep being added to Samsung's and other's statistics. Even their $1.32B in accessories blows my mind since these are cable, adaptors, and cases. Top it off with margins of 39%, something I bet no other computer company can even dream about. Why are these not good enough? Why do they always nitpick on little things? I just have to laugh about the financial industry spawned by Apple's success. It's like the real estate market at its height. Way too many realtors messing things up. Now it's the analysts turn to mess things up. Apple is a great company with great products run by great people. Years ago, investors would have invested for the long term and seen great results. Now just being a great company turns you into a shooting gallery, where brokers take turns banding away at you trying to make their small commissions many times a day by buying, then selling, then buying again, each time generating money for them but messing with my long term investment.

    That's why I make all my own trades.
  • Reply 9 of 88
    thedbathedba Posts: 443member
    Quote:

    Originally Posted by pmz View Post



    No one told Apple to once again release nothing in the first 9 months of the year and ride the coat tails of last year's products for this year's revenue.



    My own outlook on them is dismal. AppleTV and iWatch initiatives are not going to materialize this year, and frankly that's an embarrassment. The old Apple released more quality products in a calendar year.

    I think your fingers were typing faster than your brain could think.

    The old Apple, as you say, pre-iPhone, under SJ, had iPods and Macs.

    Today's Apple has far more products. iPods, iPhones, Macs, iPads. 

     

    As far as not releasing anything, what would you call this year's WWDC? I call it major breakthrough which will keep Apple at the top for many more years to come. No shiny new toys were announced but still laying the foundations for the future.

     

    Have you also given any thought as to why in the past iPhones were released in late summer and iPads in February.

    Have you thought of manufacturing capacity?

     

    I guess you haven't.  

  • Reply 10 of 88
    malaxmalax Posts: 1,598member

    I'm just (pleasantly) surprised that AAPL is slight up this morning.  It was down a smidge overnight and usually the day after earning reports is a sell-off day.

     

    I hope that when AAPL finally hits $100 sometime soon the doesn't nosedive like when it cracked $700 momentary a few years ago.  It's tempting to put in a sell order for $99.99 just to lock in some gains.  (Of course it's thinking like that that causes stocks to crash after hitting some arbitrary psychological barrier (like $700 or $100).

  • Reply 10 of 88
    imt1imt1 Posts: 87member
    Quote:

    Originally Posted by pmz View Post



    No one told Apple to once again release nothing in the first 9 months of the year and ride the coat tails of last year's products for this year's revenue.



    My own outlook on them is dismal. AppleTV and iWatch initiatives are not going to materialize this year, and frankly that's an embarrassment. The old Apple released more quality products in a calendar year.

    They did? when? 

     

    Apple has steadily released a New/Updated iPhone each year. That is always the given. iPads not every year. Mac's either get Hardware upgrades or a refresh, depending on how far along they are in the product cycle. New OS's for both Mac and iOS each year. So whats left ATV? Those hardware updates have been few and far between. If we are talking new product categories those have spans of 5+ years between launches. So...  nothing different then what has occurred in the past. 

     

    As far as Analysis being uneasy about next quarters guidance, why? The next quarter ends Sept 30th and sales are always dependent on when the iPhone is released. Typically, the bulk of sales will occur in the following Qtr (End Dec 31st). That is holiday shopping and when the bulk of these next products are due to be released. I would think that sales are down for iPads this past Quarter for those awaiting a possible hardware refresh and TouchID. Especially those who may have purchased a 5S or are waiting the upgrade to a 6, so that they have usage consistency across all devices. Again, this won't possibly effect sales until 4th qtr.   

  • Reply 12 of 88
    rob53rob53 Posts: 1,887member

    Well the Market must not be too concerned because AAPL opened up and is hanging on, up over 1 point. Last night it took a dive, flushing out the shorters, so now we can watch to see if it climbs over 100. The Market has answered all those concerns with a resounding YES!

  • Reply 13 of 88
    tallest skiltallest skil Posts: 43,315member
    Originally Posted by leavingthebigG View Post

    Oh well, at least Gene has been quiet about expecting an Apple television set.  :-)))  


     

    Needs to be fired.

  • Reply 14 of 88
    rogifanrogifan Posts: 10,669member
    When is Wall Street not concerned about guidance. :rolleyes:
  • Reply 15 of 88
    SpamSandwichSpamSandwich Posts: 29,485member
    Needs to be fired.

    Gene's employer should beat him like a red-headed stepchild.
  • Reply 16 of 88
    SpamSandwichSpamSandwich Posts: 29,485member
    sog35 wrote: »
    Stock up 1.5% now.

    This too shall pass.
  • Reply 17 of 88
    mpantonempantone Posts: 1,337member
    Quote:
    Originally Posted by SpamSandwich View Post



    This too shall pass.

    You are right.

     

    It is currently up +2.65%, busted through its 52-week high.

     

    The shorts are getting pummeled today.

  • Reply 18 of 88
    SpamSandwichSpamSandwich Posts: 29,485member
    mpantone wrote: »
    You are right.

    It is currently up +2.65%, busted through its 52-week high.

    Was about to note the same thing. Just got another automatic alert from my brokerage.
  • Reply 19 of 88
    stourquestourque Posts: 351member
    Apple's results are fairly predictable. And always profitable. That's why Wall St doesn't like Apple - nothing to gamble on. The money for them isn't in buying in selling - it's in all the other gambling instruments.
  • Reply 20 of 88
    SpamSandwichSpamSandwich Posts: 29,485member
    May hit $98 today...we'll see. Hitting some resistance right now.
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