Los Angeles (CA) - Apple investors are looking for strong results in the company's financials today. Primary growth drivers are expected to be sales coming from Macs and iPods since iPhone revenues from the quarter will not be recognized until the fourth quarter. As Apple struggles to grow iPhone sales as its third leg, 75 percent of its revenue is now coming from Mac and iPod sales. Mac in particular is finally back - sales from the computer system are increasing, while Mac newbies helped take share away from Windows PCs. That's the summary, now let's crunch some numbers as we're waiting for official figures from Apple later today.
 
"Just as it did last quarter, Apple's Mac business will be the most important revenue and growth driver," says SAI . "iPod growth has slowed to a crawl, and Apple's Q3 iPhone numbers are already expected to be tiny - the company was sold out of phones much of the quarter while it prepped for a July launch of the new iPhone 3G. We'll also be paying close attention to Apple's margins - both for Q3 and its Q4 guidance - and any commentary about the economy."
 
Yahoo Finance reports that Apple will seek to avoid the fate that befell Microsoft and Google when they reported their earnings last week. It then became clear that these tech giants are not immune to the economy's downturn so all eyes are now on Apple. If gadget-maker issues warnings or shows any sign of slowdown due to economic concerns, it will be the final proof that Silicon Valley is all over in recession. If you ask analysts, Apple is all geared up to exceed expectations.
 
According to the Bloomberg survey of 25 analysts, the company could report $7.36 billion in sales, a 36 percent growth from a year earlier, topping its own $7.2 billion sales estimate. If these figures prove true, it will be the eighth straight quarter that the company has beaten analysts' sales and profit expectations. Apple also targets $1.00 earnings per share and 33 percent gross margin. Analysts that Bloomberg polled are now modeling $972.1 million in profits (19 percent increase) or $1.08 a share, a slight decline in Wall Street's third quarter expectations of $1.09 a share profits and $7.23 billion revenue.
 
It's worth noting that Apple may have intentionally under-promised its third quarter forecast. "Apple's history for June guidance (and indeed all guidance) is to establish a guidance range that is well below actual reported results," said BMO Capital Markets analyst Keith Bachman.


Mac is back

American Technology Research analyst Shaw Wu expects Apple to have sold 2.5 million Macs in the quarter and 10.5 million iPods. If true, this would represent an increase over the 2.29 million Macintoshes sold in the previous quarter. Wu estimates that every 100,000 Macs adds $140 million in sales and 2 cents a share in earnings. Closer look at previous earning reports reveal that Macintosh and iPod sales combined now account for over 75 percent of revenue.

Sanford C. Bernstein & Co. computer analyst Toni Sacconaghi thinks that US tax rebates created to stimulate the economy in 130 million US households could have contributed to increased sales of Mac notebooks and iPod shuffles in the last quarter, citing reports from American retailers who saw a significant spike in consumer spending.

"The Mac is the primary reason we own Apple shares,'' said Altanes Investments LLC portfolio manager Michael Obuchowski in the Bloomberg article. The investment firm started pouring money into Apple shares in 2006 and says that "for several quarters, we've seen an incredible acceleration in Apple's PC business.''

"The Mac is where the margins are,'' he said. "Expectations are high, but I think they will deliver.'' Apple seems to defy economic woes and shrinking ASPs that are destroying other PC vendors' profit margins. Although still at single-digit market share, Apple has captured hearts and minds of middle-class. lucrative customers willing to pay premium for extra features that "just work." The company is aggressively expanding its installed user base at the expense of Windows PCs users who are switching due to being disappointed in Vista.

Apple's 36 percent annual growth outpaces rest of the industry by a large margin and is in line with the latest market share estimates from Gartner and IDC that now have Apple and Accer battling for the third spot in US computer shipments. Apple is now ranked the third PC vendor in the US with 8.5 percent market share, up from 6.4 percent a year ago.


iPhone sales excluded from quarterly results

The iPhone sales will be excluded from earnings report in somewhat bizarre decision by the company to delay revenue recognition of the original iPhones sold between March 6 and June 29 since these units didn't ship with the promised free firmware upgrade that wasn't available until July 11. The iPhone 3G sales also won't be recognized since the handset went on sale after the quarter ended. Both revenues will be recognized and reported in the fourth quarter that started July 1.

Saconaggi estimates that Apple shipped 715,000 iPhones in the quarter before it run out of supply during May, ahead of iPhone 3G launch. Because new software that was promised as a free upgrade wasn't available until July 11, those shipments won't count as sales until later, Apple said in April. The company has said it sold over 6 million iPhones since June 2007. With iPhone 3G, Apple has had big launch weekend in terms of sales, as the company claims to have sold one million iPhone 3Gs during the weekend.

The handset is now in low supply and is all but sold out in 38 company stores across the US, while its carrier partners in the UK, Germany, Canada, Italy and Japan have ran out of iPhone 3Gs even earlier (in the UK, O2 has sold almost all allocated units during pre-order period, leaving virtually no handset supplies for launch day). Analysts think that these shortages are sign of unexpectedly high demand that could contribute to the fourth quarter bottom line, helped by increased international presence in 20 countries (70 by the end of the year) and reduced handset price.

"The Mac is going to deliver good solid growth for the company, but it's the iPhone that needs to kick in to support future growth,'' Atlantic Trust Private Wealth Management money manager Chuck Jones told Bloomberg. "The expectation is that it will.''

Apple will release its fiscal year 2008 third quarter earnings at 2pm PDT. If you can't attend the conference call, it will be available later as QuickTime recording.

Apple lower it's Q4 guidence is the reason...

Jul 21, 2008 16:34     

TGDaily should stick to technology reporting. Apple's stocks down 8% and it's going to get worse because Sandisk missed and guided lower, Texas Instruments missed guided lower, and so did just about every company that reported after the bell today. Market is going to get crushed tomorrow.
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