Friday, October 10, 2008

Apple Earnings Preview October 21st.

Last year, in the Fourth Quarter, Apple earned 904 million dollars on 6.2 billion in income with a Gross Margin of 33.6%. They are predicting 905 million in income on 7.8 billion in income with Gross Margins of less than 32%.  (and 30% for 2009)  It is arguable how much Apples Margins may be coming in  some but there is no question that Apple will be reporting some unbelievable numbers for this quarter.  Apple guided to 1.00 per share in the 4th quarter this year ( July-Sept 2008 ) 

Apple hit the cover off the ball this quarter.  iPhone sales are off the charts and even with the Kabuki accounting that delays recognition of income for the iPhone earnings.  This will be the first quarter iPhone sales contribute significantly to total earnings.  Macintosh sales continue to outpace the rest of the industry and laptop sales are now greater than desktops.  iPod sales growth had all but stopped last christmas but the introduction of the iPod Touch with all of the additional functionality that brings sales have continued to climb.

The Bear Case for Apple over the next 12 months:

The Dow is down 37% YTD and Apple is down over 50%.  Apple does not exist in a vacuum they sell expensive products to a broad market base.  If there is a recession (duh) Apple's Sales will be effected it is anyones guess as to how much.  iPhone (from the market perspective) is still an unknown quantity and sales and gross margins are still very much in question.  The Narrower margin guidance from Apple has the street thinking Apple will tank prices and begin to compete with price.  (eew)  Macintosh computers are growing but only in a segment of the market that is now saturated with Apple products.  In order to continue growing Apple will be forced to sell less expensive (sub $1,000) computers that will cannibalize sales of more expensive computers and  as a result narrow margins.

The Bull Case for Apple over the next 12 months

iPhone Sales are far beyond currently priced in expectations,  The Coolest Gizmo Ever will have 15-17 million in sales for 2008 and projections of 30 million (because they want to sell 50 million) for 2009  Perhaps as much as $4.00 per share in net income from iPhone ALONE!.  Mac mind share continues to grow and even if the economy dings the growth. It will continue to be faster than the industry.  iPod touch/iPhone app sales will continue to grow.  Traditional iPod sales will become a less important part of the business over the next year as the Touch takes over.

Apple will report close to 30 Billion in Current assets (approx $33 per share) is currently selling for ~$90 per share 17x trailing earnings and 15x forward earnings.

Links to Related financial analysis

iPhone Analysis

Forces narrowing Apple Margins

Touch Vs. Nintendo DS

Apple and the Economy

Writer is long Apple and will be watching the Red Sox tonight. Root for Tampa Bay or Dell, or IBM it is not up to me.  Capiche?!


Brian Levine said...

Are you long Apple? Do you love your mother?

Unknown said...

Is "income" just a catch-all phrase for profit, sales, and the like, or are you British, cause they throw around the term "income" for all sorts of things.

Unknown said...

The numbers are all well and good and Apple the company is doing just fine. Plenty of cash on hand and plenty of employees to keep the customers happy. Now all we need is the economy to fall in step and if Apple investors get lucky, we might see $120 a share by the end of the year. Not exactly the $250 Gene Munster and I was so eagerly anticipating.

All my hate goes out to the mortgage money lenders and financial banks whose greed screwed up Apple's year of the Perfect Storm.

Betsy, short for Elizabeth, formally known as Esther said...

I know who you are. I know where you live.