21 July, 2009

Apple earnings on tap after Tuesday's close. [Update]

Update: Apple's reported earnings included.

What can Apple Investors and traders expect after the bell today as one of tech's giants reports its June quarter? Well if one thing is certain with Apple, each line of business will be speculated on ad nauseum starting at about 4:30PM Eastern Time.

Likely much of the focus will be on the Mac and iPhone businesses. New price cuts for Mac Computers were implemented recently and according to shipment data and analyst reports, this could be a driver for higher unit sales and perhaps, less than hopelessly conservative guidance for September. The launch of the iPhone 3GS was a great success in the middle of June, which will likely prop unit sales significantly above previous expectations, however comparisons against the iPhone 3G launch are far more difficult as its launch window fell at the beginning of the July-September quarter of last year.

Of course, analysts will ask the company about Steve Jobs, who returned to work towards the tail end of June, after a 6 month medical leave. The company has come under intense scrutiny for not commenting on the health of its CEO, however, it goes without saying everyone in the extended Apple community hopes for good news for a long time to come on that front.

So, to the quarter. The average analyst estimates paint a picture of Profits at about $1.17/share on Revenue of $8.2Billion. Slowly as the quarter has come along, analyst numbers for Apple's unit sales have crept up and with that too went the Revenue target.

Year over year comparisons vs estimates for the quarter are as follows:

  • 2008 Macs: 2.496Million Units vs 2009 Macs: 2.5Million Units
  • 2008 iPods: 11.011Million Units vs 2009 iPods: 9.5Million Units
  • 2008 iPhones: 717,000 Units vs 2009 iPhones: 5Million Units
Actual June quarter 2009 Unit Sales:
  • Macs: 2.6Million Units
  • iPods: 10.2Million Units
  • iPhones: 5.2Million Units
Now, with Macs expected to be roughly the same in terms of units and iPods down year over year, the real growth story is the iPhone. A year ago, there was incredible pent-up demand for the iPhone 3G, which led to the units sales figures in 2008 for the quarter. This year, analysts are far more optimistic with the iPhone, and have already had some help as Apple announced first weekend sales figures of the iPhone 3GS at over 1Million units.

While those 3 major product lines represent the bulk of Apple's cash creation business, not to be overlooked are the percentage of revenue that is derived by iTunes, the AppStore, Software and other accessories. Last year the Music, Software and Other categories of Apple's business represented $1.76Billion in Revenue.

Revenue Breakdown for June quarter 2008
  • Macs: $3.60Billion
  • iPods: $1.68Billion
  • iPhones: $419Million
  • Music, Software and Other: $1.76Billion
iTunes continues to grow as the online music destination and the AppStore which had no presence a year ago has gone on to become the biggest software platform in the world today with over 1.5Billion applications downloaded. Yes, most applications sold are "free" and Apple makes very little profit from this even with its 30% share of Revenue, but this drives adoption of iPhone and the more expensive iPod Touch units which drive margins higher.

While it will be hard to maintain gross margins of 34.8% given price cuts on the Mac line and the back to school iPod Touch promotion, it is possible for Apple to maintain these levels given the increased presence of the iPhone in terms of Revenue and Profits.

Total iPhone units sold to date represent 21.17Million Units and with another 5Million units estimated in this quarter it'll bring the total to about 26Million units sold to date and given Apple's deferred Revenue accounting this running total is very important as all iPhones are still contributing 1/8th of their sale price to this quarterly report.

WC Power Tech Fund Investment Blog Revenue estimates for Apple's Quarter:
  • Macs: $3.3Billion in Revenue vs. Actual Mac Revenue of $3.329Billion
  • iPhone: $2.1Billion in Revenue vs. Actual iPhone Revenue of $1.689Billion
  • iPods: $1.25Billion in Revenue vs. Actual iPod Revenue of $1.492Billion
  • Music, Software and Other: $2.1Billion in Revenue vs. Actual Other Revenue of $1.827Billion
All told, $8.75Billion in Revenue, given similar margin treatment as a year-ago, which brings profits on 890Million shares outstanding to the $1.40/share level. If this is similar to what Apple officially brings to the table today after the close, the bulls on the stock, will have something to continue to cheer about, despite the increasingly hollow guidance-chasing game.

Apple's results:
  • $8.34Billion in Revenue
  • $1.38 Basic EPS (890Million Shares) & $1.35 Diluted EPS (909Million Shares)
Disclosure: Author owns AAPL.


RK said...

good post... I'm thinkin of writing AUG 170/175 call spread on AAPL, but can't ignore this strong breakout... i can't bring myself to write calls for only like $40 of upside per base contract. Throughts on short-term price range?

Chris Krasowski said...

What also can't be ignored is Technology leadership in this earnings season.

It started with Banks posted some good numbers, and that got the ball rolling for the S&P, but it's been Tech that hasn't let the rally fizzle with blowouts from Intel, Apple, Ebay etc.

S&P still has some legs in it here at 960+ but, as earnings reports come to a close and we get more economic data I think there will be pause, but hopefully what Goldman has come out and said will turn out to be true, that of the S&P at 1060 this year.