Apple's Gunning for Records with September Quarter

As analysts line up their predictions for Apple's (AAPL) upcoming quarterly earnings report, one thing stands very clear. Records are made to be broken. In the quarter that saw the continued success of iPhone 3GS, price cuts on Mac Computers and a slew of upgraded or new iPods, the company is firmly poised to deliver its best back to school season ever. Apple's typically conservative guidance for this quarter called for earnings in the range of $1.18 to $1.23 in profit/share on sales of $8.7 to $8.9Billion.

Standing in stark contrast are analysts with Revenue figures at $9.2Billion and profits of $1.42/share on average. Apple over the last few years has beaten earnings expectations by a staggering 39% and Revenue by 7%. Perhaps the analysts have caught up this time? Not yet. 90 days ago the average estimates stood at $1.27 and have climbed since to $1.38 and where it currently stands at $1.42.

But, since when do analysts really have a handle on the hot trends of the day. The Apple generation of the 2000s have grown up with iPods being a must-have, the Mac as a must-have College tool and now the iPhone as the it mind-share capturing device. But analysts, like most things come in all shapes and sizes and estimates, certainly for Apple, can vary wildly.

On the Computer front, expectations have risen for Apple to sell upwards of 2.8Million machines, a new record for the company. In the year ago period, that number was 2.6Million. While iPods are slowly an eroding business, another 10Million units are expected to cross hands, and the stunning growth of the iPhone business will continue with estimated sales of about 7Million units.

While Apple's been dropping prices on Macs and iPods to maintain sales and grow share, it has plenty of room to keep margins steady as the iPhone is by all accounts a profitable monster, and the launch of Snow Leopard software adds to the margin story. Taken altogether and the pros are calling for continued sales success at Apple.

Whether the market believes it too is the next test.

Disclosure: Author owns AAPL

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.

Technology Market Leadership Part 2: Apple beats again

With the Nasdaq pacing the other market indicators throughout the trading day, it was clear that Technology was on the mind of most Traders.  With eBay (EBAY) reporting numbers to an enthusiastic response, next in line was the mighty folks from Cupertino, waving their iPhones and Macs, sans Legal Copy (If you haven't seen the latest I'm a Mac ads you are missing out on high comedy).

For Apple (AAPL), this quarter was met with tempered expectations.  Charts and Graphs flew across the Internet, projecting the sky was falling for the Mac.  Well not exactly falling, but some rather large chinks in the armor were showing.  Microsoft (MSFT) ads that actually garnered praise! Mac sales at a year over year drop for the first time since 2003! Apple not in the fast growing netbook Market! Pres, Androids, Berrys aplenty! Where's Steve?  I think you get the gist, a lot of shouting and hand waving by analysts and the media, some thoughtful, most not so much.

Even, Apple's number 1 business fan, CNBC's Jim Goldman, in a recent piece was comparing Macs to PCs on price and intangibles, made a point to mention that Macs come with Photoshop!? Perhaps a confused slip of the tongue but nonetheless tried and true stockholders are wondering if anyone outside the Apple circle truly understands the business. And in all likelihood, that's the reason the shares are so under appreciated and victims of manipulation and rumor.

But there's a little something called cold hard facts, and Apple's been providing them aplenty, quarter after quarter.  And with that, providing what seems like quarter after quarter of what I like to call 2/3rds guidance. When will the pros just forget about those last two sentences in every Apple press release.

But now to the hard hitting stuff, the news that matters, the numbers.

• Revenue: $8.16Billion vs $7.7Billion expected
  
• Earnings: $1.33/share vs $1.09/share expected
  
• Mac Units: 2.2Million vs 2.1-2.2 expected
  
• iPod: 11Million vs 10Million expected
  
• iPhone: 3.8Million vs 3.3Million expected

That's as clean a sweep across the board as you can see.  The worrisome figures for most coming in was the Mac line, however this business is on solid footing now as the recent desktop line upgrades start to bring in repeat customers while the popular MacBook designs continue to impress laying Mac styling in front of and towards the general public.  In an economy where the most popular computers across the board are $300-$500 netbooks, Apple is doing very well at its "premium" price points.  The upgraded Mac Mini and the last generation MacBook give Apple some penetration in the sub-$1000 market.

iPhones continue to be big, and not only for Apple.  Analysts were scrambling to revise their iPhone estimates upwards as AT&T (T) reported very strong wireless results as part of their quarterly report.  With 1.6Million iPhone activations (only 300K less comparatively to the holiday quarter) AT&T was quick to point out that iPhone subscriber churn is extremely low (customers love their iPhones) and iPhone ARPU was 1.6 times the average (customers love spending on data plans).

Basically the iPhone's little sister, the iPhone Touch continued to increase in popularity as the AppStore has proven to be an incredible driver of not only adoption, but also loyalty.  With Apple about to cross 1Billion applications downloaded this marketplace becomes the fastest growing software distribution channel in history.  With combined iPhone and iPod Touch sales totalling 37Million units and counting, the install base for developers is only continuing to grow. And as Apple readies the reported and rumored "iPod Touch HD", their curveball into the netbook/tablet market, be sure it'll be accompanied by an AppStore of its own.

How did Investors react to the news? At first nonchalantly, Apple sold off late in the day as worries seemed to creep into the stock.  After-hours however a 3% gain on solid results but sluggish guidance.  The guidance number was partially explained on the call, which I'm sure has yet been properly disseminated.  Apple is recording no Revenue from iPhones sold after their March event of iPhone software 3.0.  This is all due to some technically complex accounting rules that allow their subscription based model to yadda yadda yadda (Insert Legal Copy). In a nutshell, by doing this they can legally give iPhone users the upgrade for free.  iPod Touch users however, are stuck with another Hamilton (Doesn't have the same ring to it as a Benjamin does it?).

Since the software is set to come out in June, that's essentially an entire quarter of 0 recognized iPhone revenue.  Kinda sounds like it fits nicely in the gap between Apple Revenue guidance and Analyst Revenue expectations doesn't it? Provided that the analysts have finally deciphered the enigma code that is Apple's subscription accounting method wherein all iPhone revenues, profits etc are split amongst 8 quarters while the rest is deferred into an ever increasing cash pile which at the moment stands at $29Billion.

To be fair, Apple has begun giving Non-GAAP accounting to try to set Wall St. straight.  And by those metrics, the earnings are just staggering.

• The Current Quarter: $1.84/share
  
• Last Quarter: $2.58/share
  
• Quarter before that: $2.74/share

So the last 3 quarters of "real" earnings paint a picture of $7.16/share in earnings for a stock priced at $125. That's a P/E of 17 in 3 Non-GAAP quarters!  Considering the $33/share in cash that Apple holds, that 3-quarter P/E ratio falls to 13. Looking ahead to the next quarter on a Non-GAAP basis and Apple is likely to earn close to $9/share (vs a comparitive estimate of the GAAP earnings of about $5.55/share).

This company is still undervalued, and while their entry into the netbook/tablet space will be closely watched, so will be the return of CEO Steve Jobs.  Rumors and stock market games aside, Apple is an incredible money printing design house and because of its accounting rules it still seems "expensive" to some.  An injustice that will hopefully be corrected as next-quarter analysts will have a full year of Non-GAAP numbers to look over and use in their predictions.  Then maybe it'll be Apples to Apples.

Disclosure: Author owns AAPL, T, holds Call Options in MSFT

A Tale of Two Cities: Easter News and Notes

A tale of two cities, screams to be profoundly appropriate in describing the current climate of the American markets. Those two cities of course would be Detroit and New York. Symbols representing two pillars of the American workforce and economic prosperity. Both the auto and financial industries have been decimated by losses, layoffs, and market indifference, producing for some, the biggest market fall since the crash associated with the Great Depression.

Detroit's auto stocks are still in tatters, and the news did not get much better. The US Treasury has provided General Motors (GM) with a specific set of instructions for the preparation of Bankruptcy on June 1. It looks less and less likely that GM will be able to avoid that scenario and Investors showed no confidence in any alternative as Monday's trade saw GM give back 16% to the $1.70s.

To counter that, New York was having a fantastic session as the optimism from the Wells Fargo Corp (WFC) pre-announcement of profitability sustained financial momentum. With important earnings announcements upcoming, Goldman Sachs (GS) and Citigroup (C) Investors are seeing a renewed confidence in not only profitability, but the ability of the government to do what it has set out to do. Rid the financial books of terrible assets.

Analysts estimate Goldman to earn about $1.30/share, but the street has begun its whisper-practice and with Goldman still seen as the strongest of the Wall Street brands the company is expected to beat its own number and handily. Citigroup, having alerted the market to profitable months in January and February is looking to continue, despite the accumulated average estimate of a $0.37/share loss (according to Yahoo finance). Goldman will likely set the tone for the banks, and if others in the sector can surpass their estimates it will go a long way to support this current market rally, and instill the type of institutional confidence that is needed to make the latest gains sustainable.

Also in the news over the weekend, besides a thrilling Masters golf finish, was reporting from the Wall Street Journal (Link) that Apple's (AAPL) iconic CEO Steve Jobs, is in fact still very much in the picture and involved in design and business decisions. Word is that Jobs was very much involved in the interface of the latest iPhone OS, version 3.0, and is also involved in the creation of the much-heralded Mac tablet/netbook device. The return of Steve Jobs, from a 6-month medical leave has been a cloud over Apple's stock despite sales growth and product innovation from the company. The recession may have curbed consumer spending habits severely, and Apple's premium brand did suffer, according to market research statistics, but with the company continually improving its Mac Computer and iPods lines recently and an upcoming iPhone announcement surely in June, Investors have begun to set aside worries about Jobs.

Should Jobs return on schedule and lead the next phase of iPhone evolution, expect resonant cheers and analyst upgrades on the anticipation of the next phase of Apple's product road-map. In fact Kaufman Bros. Shaw Wu conceded Apple's value in his latest report, bumping his price target to $150/share.

News reports of the rally's sustainability have been mixed, with some expecting negative trends to overshadow any glimmers of recovery. Thsoe glimmers however, are due to get brighter if the financial sector continues on this path of pre-announced profitability.

Apple eyes Successful Holiday Season with new Mac Notebooks

As per the norm, rumor-mills were ablaze with blurry photos, leaked specs and incredulous claims about Apple's (AAPL) upcoming surprises in the computer space. Just about a month after it refreshed its iPod line for the school and holiday seasons the Mac maker returns to the stage to unveil an entire new line of laptops, with enough bells and whistles and marketing glam to gleam into the eyes of affluent America regardless of those pesky "economic headaches".

Will it be enough to satisfy Investors and bring ever-increasing tight-wallet parents out of the woodwork and into Best Buy (BBY) or Apple retail stores?

The run-down of new products, in short prose will follow, as they'll cleverly be splashed across technology publications all day and likely all week. The important thing however is that Apple is using the rumored "Brick" design process to make cases for the entire laptop line. A process that is able to carve an aluminum case for each laptop out of a block of metal, saving all excess to be reused in the process at later stages, this is in fact not a wasteful process at all. Apple getting high environmental marks for its latest products is also a change for the company over the course of the last couple years. The new laptops also now have glass track-pads without individual buttons. A new feature of today's laptop line is that the glass track-pad acts as a button and introduce more multi-touch capabilities including 4 finger actions. Not to mention the innovation of having its Pro line of laptops driven by not 1 but 2 graphics cards, that can be turned on and off for better battery performance or better hardcore video performance.

But without further delay:
-> MacBook: Original White Model price drop to $999. Apple just barely entering the sub-$1000 market, it may not be enough to convince analysts but the $999 price point is nonetheless an actractive one for the core Apple market demographic and engaging those further beyond it.
-> Aluminum MacBook: In 2 configurations at $1299 and $1599
-> Refreshed MacBook Air: In 2 configurations with spec bumps at $1799 and $2499
-> Aluminum MacBook Pro: Multiple configurations for 15" and 17" models: 15" models in 2 configurations at $1999 and $2499
-> Apple also introduced a new 24" Display for $899

So, now that the current round of rumors may be put to rest, what does the future and the holiday season hold for Apple. By all accounts of the crowd at the notebook event, the reactions to the new laptops was very positive. Will the $999 MacBook continue to be a best-seller or will Apple have to dive deeper into netbook price territory?

It is my belief that Apple's brand has for years developed a premium stigma to it and that the design prowess of the company can not be underestimated. While other computer makers may struggle with economic conditions, putting pressure on margins, Apple's pressure is offset by its current target demographic, which mainly consists of youths with disposable cash and many parents of that youth segment. Apple made big points in its presentation today about its growth in the retail segment of the US and its market share gains across college campuses. This will resonate in the years to come as well as the short term. Of all those feeling the pressure of an economic slowdown the last truly feeling the pinch will be the more affluent and wealthy of which Apple demands a significant amount of technology/gadget attention with its iconic product line of iPods, iPhones and Macs.

That is not to say Apple shares wont feel the pressure, in fact Apple suffered as large a drop as any large tech company over the past month as fear of consumer spending shortages spread throughout markets. With Apple the volatility comes with the secrecy and the cult-like following. But markets, as forward-looking as they are generally aren't wrong for very long.

Apple is expected to reveal quarterly results on October 21st following a quarter mixed in terms of news coverage, events and economic activity. While it is a big back to school season for Apple at this time of year, analysts and Investors are fearful that the economic uncertainty facing the US could have had a significant impact on casual spending. Apple has proven to be recession-proof in the past but the company will have to prove itself again with results, and prove itself yet again with guidance that doesn't scare off the institutional buyers.

Till results are revealed, Analysts, Investors and Fan-Boys have a brand new slate of Apple laptops to go and check out at Apple stores all across the country.

Disclosure: Author owns AAPL.

Apple in the Bargain Bin around $100

Tumultuous turmoil in the marketplace has left Traders and Investors on a selling spree as the US Financial crisis spreads through the credit markets and begins to lurk in the nooks and crannies of Main Street economy. While several incredibly leveraged and debt-ridden names deserve to be under the knife of their own implosion other great companies are just being swept into the sandstorm of negativity. Apple (AAPL) is surely one of those names!

Granted, Apple was and may still be a high P/E stock and as markets contracted of late, Apple's multiples have moved in kind, despite the company's growth outlook. The supplementing downgrades near this latest bottom offer a hope that this is a bargain basement price for this still solid growth company. When analysts start piling up the downgrades like Morgan Stanley and RBC did against Apple yesterday, during the Market's worse point loss, its time to reconsider that this may in fact be a bottom.

Coupled with the White House push to get some sort of Bailout Plan passed through Congress and you've got a recipe for a potentially big turnaround. Let's take a quick look at the Apple "downgrades". The RBC analyst cut his Mac sales estimate from 3.0Million to 2.9Million units, which all things considered is still a stunning sales pace when a year ago the company shipped just over 2.1Million Macs. iPhones sales estimates, well RBC actually rose those from 5Million units to 6Million units in the quarter.

As the 3rd iPhone rollout begins, which in early October should include Russia there is very little, if any, doubt now that Apple will blow past its own goal of selling 10Million iPhones this year. It's also poised to be a 10Million Mac year, which of course will be a record for the company, not to mention the 10+Million iPods shipped every 3 months. With Apple holding an iPod event earlier this month to announce new Nanos and reduced pricing on iPod Touches the company wants to place itself within a comfortable range of consumer spending, even as that spending starts to deteriorate.

While its true a new computer favourite with consumers is the "net-book", the small screened sub $500 machines for the budget-conscious shopper on the go, but even as Apple gets more mainstream with its computer business it is still a premium niche design brand. Tiffany's doesn't suddenly start selling cubics does it? Brand recognition and popularity especially among the youth market is critical to businesses in a consumer downturn and Apple has it. All signs earlier in the quarter have pointed to a record back-to-school shopping season despite economic perils. Not to mention Apple's own claims of margin-cutting new devices coming soon, which likely include either lower priced entry laptops or the ever-rumored Tablet device.

The iPhone is the next big growth phase for Apple, as iPod users upgrade/replace existing iPods with new models or iPhones, the company will continue to see the incremental revenue from not only those device sales, their booming iTunes online music business, but now also from the sharply growing Application download business. The latter of which, providing $30Million in revenue on its first 100Million downloads in the first 2 months of operation.

As Apple's quarter comes to a close, earnings are right around the corner and as always analysts will be looking towards guidance more than anything. This is where Apple's biggest problem may be. Given the current economic climate Apple's typical lowered and comfortable guidance may hurt more now than it would help later. The important thing to remember with Apple's upcoming results is that its future is sound, with 10s of Billions in cash and deferred revenue from iPhone sales the company isn't looking at any debt, has the flexibility to still innovate and negotiate tough economic climates, especially as it captures the press in another "Steve-note" later in October to unveil new lowered price MacBook and MacBook Pro laptops (as the rumors go).

But consider this. After this quarter, cumulative iPhone sales will likely be close to 11Million units, and at $400/device on average (pre-subsidy) that's close to $4.5Billion in revenue of which an 8th will show up on this quarter's books, $550Million. When you consider a year ago Apple had total sales of $6.2Billion for the quarter, the iPhone piece is becoming ever more significant. And when Investors think about the additional $4Billion that will be padding Apple's cash horde in the upcoming quarters it will certainly make them breathe easy even in the most crimped economic spending scenarios.

Apple's cheap, it's a steal, and there are very real catalysts in the next few months (Earnings, Mac Event, Christmas Sales, MacWorld, Christmas earnings). This is a stock that could climb 50-60% from here in the next half-year.

Disclosure: Author is long AAPL

Apple plays the Conversative card, sets Record June Quarter, shares go on sale

Amongst the iPhone 3G euphoria surrounding Apple (AAPL) these days is the bread and butter Computer and iPod business lines. Today, those lesser hyped money-machines were in the spotlight as the Cupertino Computer underdog posted an impressive and record breaking quarter.

Results coming across the wires placed Apple with $1.19/share in profits from $7.46Billion in revenue. Considering the street was averaged in at $1.07/share and $7.36Billion across the top line, those numbers represent a dramatic earnings beat. On the sales side, the company sold a whisker-shy of 2.5Million Mac computers, over 11Million iPods and over 700Thousand iPhones. All figures above or right at Wall St. predicted levels.

The problem with Apple, as always, is the conservative guidance game the company plays with analysts and investors. The Street had earnings for next quarter pegged at $1.24 on Revenue over $8.3Billion, pretty ambitious but certainly achievable as the popular Back To School computer shopping season is in full force, as well as the successful launch of the iPhone 3G. Apple's story for next quarter was incredibly conservative with earnings of about $1.00 on revenue of $7.8Billion.

Considering 3 months ago at this time Apple was saying the just ended quarter would yield profits around $1.00, which they have now beat by 20%, one would think the analyst community would get used to the, as some have coined, "sand-bagging". Not so, Apple shares took an after hours tumble of $15/share after the results were posted.

With the company having such an extraordinary growth trajectory, why the conservative guidance? Well for one, reeling in expectations is a gigantic undertaking when dealing with a company of Apple's substance, style and mystique. The company shroud of secrecy with new products, product refreshes, and partnerships adds to that mystique and as the general public feels the excitement of new Apple products, or Apple success, so too does the Wall St. community.

From time to time, these expectations have to be brought back to reality. The current quarter saw Apple deliver 44% year over year revenue growth and 30% year over year profit growth.
Expectations for next quarter currently expect growth of about 35% revenue and 23% profit. By creating a situation where expectations curb themselves into the 30%-20% zone, Apple will be poised to once again play the old "under-promise and over-deliver" poker hand.

Given that it's the popular back-to-school shopping season, Apple has year after year went further and further with its iPod giveaways tied to new Mac purchases. This year was the biggest yet, as the company is including iPod Touch devices with the promotion. These giveaways aren't cheap and can put pressure on margins. However, last year at the time the company was also doing its "biggest back to school promotion ever" and somehow seemed to land on its feet and blow away analyst profit expectations.

The bottom line here is, that once again Investors have a chance to pick up Apple at a discount. Considering with this most recent report, the company has earned $5.12/share over the last 12 months and is looking ahead to growth rates of about 30%+ for the next 12 months. This sets a P/E at current after hours levels of 30. Perhaps that can be considered high but with a Price to Earnings Growth ratio under 1 and growth continuing in the Mac and iPhone segments of Apple's business the future does seem bright, even if current economic turbulences keep Apple from all time share price highs.

In the $150s, and looking out 1-to-2 years, it's a steal, plain and simple.

Disclosure: Author is long AAPL

Apple rides Strong Mac Computer Sales to earnings beat

Mac, iPod and iPhone maker Apple (AAPL) reported a very strong quarter for the 3 months ended March. The sheer numbers were staggering: $1.16/share in profit on $7.5Billion in revenues. This compares with analyst expectations of $1.06/share profits on $6.9Billion in revenue.

Apple beat on both the top and bottom line but Investors aren't yet sure where to go given guidance and a wavering US economy. Apple showed its ability to grow in tougher economic times due to their innovative products, brand value and successful retail integration. A year ago Apple earned $0.87, which represents year-over-year 33% growth on an EPS basis.

The big deal here, over 50% growth in Mac sales to almost 2.3Million units in the quarter. The quarter also included flat iPod unit sales of 10.6Million and rather strong iPhone sales of 1.7Million units. Margins were good for the company, albeit lower year-over-year, as memory prices continued to hit lows. The company guided for earnings of $1.00/share for the next quarter amid reassurances component costs will continue to be favourable.

News on the iPhone front? All those shortages we've been hearing about that led to speculation of an upcoming 3G model sooner as opposed to later? Seemed to be just that, shortages, due to higher than expected demand. Of course unlocking is a big deal and while the company is using the unlocking argument to peg worldwide demand, the sheer percentage of iPhones being bought to be unlocked has to be very high. While no numbers are given by the company, some outside analysis and reports have pegged unlocked devices as high as 30% of units.

The focus for analysts for this quarter were Macs and iPhones, and according to the earnings report, growth rates for both revenue streams are very high. Mac sales of almost 2.3Million units is very strong, coming close to the record sales number posted by the company for the previous Holiday quarter. Sales growth rates in all regions are strong and once again sales of Macs in Apple's retail stores, 50% of the time, went to first time Mac buyers. That old faithful Halo Effect at work once again.

On the iPhone front, the company has added some complications to revenue going forward due to accounting issues. The company will not recognize any revenue from new iPhone sales from after the iPhone 2.0 Software upgrade announcement until the software is delivered. Essentially meaning next quarter numbers for the company will include ZERO dollars in new iPhone revenue since the company expects to release the software near the end of June. Revenue that is deferred from previous iPhones sales will be included (as of the latest quarter deferred revenue stood at $1.9Billion). This will put some pressure on margins and the top line numbers when doing comparisons, but will add an additional bump to the following several quarters. The company will recognize this gap window on an adjusted basis for the remaining 2 years as with normal iPhone purchases. The company reiterated its internal goal of selling 10Million units in 2008 and their strategy of being in Asia this year.

On the retail side, Apple continues to be the best revenue per square foot retailer in the world. The company plans to open several high profile stores in the remainder of the year, and its "Store within a Store" concept and increased presence at Best Buy (BBY) stores has grown to 400 locations, with plans to expand into 600 as the end of the summer.

When all is said and done, it is another fantastic quarter for the Electronics maker. Analysts and traders are still trying to figure out where to go from here considering Apple's stock has grown from $120 to $160 in the past few weeks. However, without a shadow of a doubt, this company is continuing to grow, and grow dramatically, has some very exciting events and products in the pipeline, and has the potential to significantly expand market share in the Computer and Cellphone business segments. All signs that can be used to justify further share price gains throughout the year.

Oh and the company added about $1Billion in sheer cash, putting its war chest at about $19.5Billion. Not too shabby a rainy day fund I'd say.

Disclosure: Author owns AAPL

Update: April 24, 2008

Apple Shares Slide as Conservative Guidance bests Record Results

The hype machine that is Apple (AAPL) has run into a series of Investor stumbling blocks of late. Not only is the degradation of the US economy foiling its plans for personal electronic revolution, the company has had to deal with an increased footprint, Greenpeace complaints, Product Leaks, and somewhat unrealistic expectations of itself and its results! And all the while, maintaining record revenues and profits. The Dec 07 quarter was no exception as Apple delivered earnings of $1.76/share.

Apple's own guidance, always thought to be conservative, for the Christmas quarter was seemingly aggresive in the $1.40/share range, while The Street pegged earnings in the $1.50s. Fast forward to right before earnings and The Street's consensus estimate had jumped to $1.62/share with whispers of Apple delivering close to $1.80. Consider that one year ago Apple delivered $1.14/share and their own guidance was already close to a 30% rate of growth year over year. Those ever ambitious analysts on The Street were expecting over 40% year over year growth.

So, broken down and battered by recession fears Apple delivered $1.76/share, representing a 54% year over year profit growth rate! Remarkable! With the sales breakdown producing even more records for the company. Revenues gained 35% year over year to $9.6Billion.

Over 2.3 Million Mac Computers sold
Over 22.1 Million iPods sold
Over 2.3 Million iPhones sold

And this just begins to scratch the surface of the company's historic and record setting quarter. Now analysts had their own ideas and Apple matched, or bested all of them except for the numbers of iPod units sold, however, iPod revenue grew much faster than unit sales did (17% vs 5%), meaning the product shift had begun towards more expensive and higher margin models. Analysts were expecting higher unit sales in the neighbourhood of 23-25Million for Apple's very successful music player business.

Good old trusty Apple CFO Peter Oppenheimer gave the traditional spiel of "We give guidance we have reasonable confidence in achieving" just like every other quarter but analysts were taken aback at how soft the next quarter may be for Apple. Is the economic slowdown in the US going to effect this high profile firm this dramatically? Apple's guidance of $0.94/share looks soft on the outside, considering it reported $0.87/share a year ago at that time. How quickly analysts forget that Apple's guidance a year ago was around the $0.60/share mark. But, for Traders $0.87/share represents only an 8% year over year increase in profit! And this sent the stock spiraling after hours. Apple, which had found itself at record levels above $200, just weeks ago, has seen shares fall to the mid $155 range at closing, and further down to below $140 after the results came in.

The stock took an 11% hit to $138 after results and guidance were announced. This is too much, even in a turbulent economic picture such as the one that's painted for the United States. Apple's trailing earnings with this result stand at $4.56 or a 30 P/E. For growth of 54% year over year, this is astonishingly cheap! But don't jump on the trigger just because of that. Even though the Price-Earnings Growth multiple looks very attractive, it doesn't paint the entire economic picture. If recession is as likely as The Street makes it out to be, Apple could very well fall to a PEG of 0.5, from its current 0.55. Meaning that if next quarter's growth continues near 50% (regardless of conservative guidance) Apple could trade at a P/E of 25 given current economic conditions. On earnings of $5/share that would value Apple at $125. This I would see as an absolute bottom for the stock of this successful company.

Looking at the big picture, iPhone growth is an area where Apple will continue to see acceleration in earnings, due to its carrier revenue deals, and these will become a major part of earnings in 2008 and 2009. As the installed base of iPhone users grow, the recurring revenue Apple generates will follow suit, in a major way. Monthly payments to Apple from each of its carrier partners will become the big earnings story for the stock, along with revamped and redesigned entries to its popular Notebook Computer line.

I summarized where I think the bottom could be, but what about the bullish side of Apple. Well, once Wall Street gets its head around the conservative guidance game once again, and CEO Steve Jobs brings the Press together for a couple product events (New Laptops, A Tablet, iPhone SDK, WWDC and more) the Apple story will be once again first and foremost on Technology Investor's radars and the company can regain a P/E ratio of 40 going into the end of 2008. The end result in this case, if the US economy finds its footing and can sharpen growth expectations going forward, is a company continuing its string of successes over the past few years. Earning close to $6/share in FY2008 and capping the year at over $230!

So with the Bull and Bear cases in hand, it is up to Investors and the US economy to decide where Apple will be taken for a ride next!

Disclosure: Author is long AAPL

Apple shares pass $200, A new Record

Apple (AAPL), is also enjoying a strong holiday as iPods are as popular as ever and the Mac computers continue to well outpace the computer industry in terms of growth, and that's without even mentioning the other "hottest gadget of the year" iPhone. Apple in fact is one of the main culprits of Amazon's (AMZN) sales success as Mac computers and iPod line ups flock the electronics best sellers lists.

Whispers about sales are starting to trickle in pegging iPhone sales around 5Million units for the year, well above of most analysts 3-4Million estimates. Thanks in part to initial success with European launches and the $200 price cut that the device saw earlier in the fall. Considering that Apple's goals were to sell 10Million units by the end of next year it appears the company, for all intensive purposes, is well on its way. And its only the beginning as the device is officially on sale in only 4 countries. Once confirmed news of iPhone deals in China, Japan and the rest of Europe hits, the early sales goals will, in retrospect seem completely low-balled.

Apple's forgotten, and not so well selling device, AppleTV seems to be in the spotlight again as analysts expect an upgrade to the unit as well as the content available for it with iTunes. Apple's famous MacWorld Expo is just on the horizon and it is this event that usually brings with it product introductions, company metrics and newly minted partnerships. The hope is that Apple will bring aboard more movie studios to iTunes and perhaps expand the sales model to also include rentals. Reports coming in suggest that Fox is the first to sign on for the "rental" model and that this will be announced at the Expo. This feature should give the AppleTV some new life and perhaps force an upgrade, including the long wanted HD content in iTunes. Having Rentals and HD Video in the iTunes store come MacWorld would be 2 very big steps in the right direction to not only Apple but the entertainment giants as well.

Digital Rentals are a market that hasn't taken off yet, with many players attempting to make it work but no one dominating. Microsoft, through Xbox is trying, Amazon is trying, NetFlix and Blockbuster were trying too. The verdict, nothing really works well and each platform simply isn't wide enough. But iTunes, with its Billions of downloaded songs, and 100 million downloaded videos may just be that massive machine to get the ball rolling. Much as the demise of the CD caught the music industry off guard the last year or 2, I see a similar fate coming to DVD, with everything going digital. It doesn't help that the next gen HD disc format is in a war that is dividing consumers and studios either. So, should I get a Blu Ray player? An HD DVD player? a combo player just in case?

Too many questions, no real answer, or could there be? 120Million iPods have been sold, iTunes is seemingly on the majority on computers already, HD rentals would take off on this platform within 12-18 months pushing next gen disc formats aside as Digital content truly becomes King, Broadband expansion will make downloads quicker and that hurdle of "downloading time" will be a thing of the past.

When this rental announcement becomes official, more power to the Studios who stepped up, and didn't try to strong arm the one dominant player in the online Music and Movie sales business.

So is there still upside to the Apple story? Yes, but time frames have to be adjusted now. Forward P/E sits in the low 30s and the company is nearing it's marquee event, and its undoubtedly strongest quarterly report in history. So what's that mean for the investor? It means estimates are still too low and price targets will still continue to climb. Remember current Apple estimates only include 10-12Million iPhone sales by the end of 2008, no real clear idea of the revenue sharing model that will become a monthly cash cow for the company, and absolutely no AppleTV income, as the product hasn't sold well yet. Yes iPod growth is slowing, to only about 20% year over year, but Macs are surging to more than make up for that P/E ratio softening.

Bottom line, Apple at $200 is still a very interesting long term story, dips are great opportunities to accumulate, and this one will likely beat the market once again, by this time next year.

Disclosure: Author is long AAPL

Amazon's Strongest Holiday Ever, Company on fire, Stock still Pricey

A couple high profile Technology names have been making waves over the last couple of days. Amazon (AMZN) and Apple Inc. (AAPL) have both been in the news for the better, with the former seeing record retail sales, and the latter hitting record highs. Christmas has been very good for web-retailer Amazon, as it came out saying that it in fact had its biggest and strongest sales season ever.

For a company that's been an Internet giant for more than 10 years, it definitely seems like Amazon has hit a new stride and is once again riding an optimistic wave. The numbers though are just staggering, but more on that in a second. Yes more and more shoppers are comfortable online, yes there's more product available online than ever, yes Internet penetration is rolling out further worldwide, but still, Amazon's surge in shopping can majorly be credited to its own internal innovations, and with that the simplest form of advertising, word of mouth.

The busiest day this year saw more than 5.4Million items being bought. Highlighted specifically by strong demand for Nintendo's popular Wii game console, the refreshed line of Apple's iPods and Mac computers, GPS systems and HDTVs. Comparing to last year, this was about a 35% increase! Now yes this is a "peak" numeric, but I think it is safe to say that Amazon's on the retail uptrend, rather than just simply enjoying seasonal consumer increases. Even the company's own Kindle e-book reader is reportedly selling well in its early stages. It is news like this that will really boost the company back to its triple digit share price highs, as the retail business is very low margin while the electronics game is something else entirely.

A $40Billion market cap based on a triple digit P/E ratio is still too rich for my liking but the strongest companies have a knack for slowly molding from inflated P/Es and before you know it they even seem cheap. To say that Amazon is growing again would be a tragic understatement, the company is better than its ever been, now if only they can judge that Wall Street expectations game as well as ever, shareholders can rejoice alongside with staff.

Disclosure: Author does not own AMZN

Apple does far more than just Shine with another Record Blowout Earnings Number

Not to be outdone by its Technology peers in the "Blowout earnings" game, Apple (AAPL) came through with a record breaking September quarter. Going against history Apple also guided higher than Wall Street anticipated for the Christmas quarter. The earnings of $1.01/share and the guidance of $1.42/share for next quarter led the stock to gain 7% after hours.

There are blowout earnings and there are BLOWOUT earnings and Apple's quarter certainly falls into the 2nd of the 2 categories. Apple's earnings of $1.01/share beat the street expectations of $0.85/share and Revenue of $6.22Billion was well ahead of the expected $6.02Billion. The company ends its Fiscal Year this quarter and for FY07 the company did over $24Billion in revenue. This first time in its history having a FY with revenue over $20Billion. Guidance from the company surprised analysts as it was very bullish compared with Apple's historic trends.

Apple's typical conservative guidance due to "less favourable commodity conditions" and "product transitions" really was a sly practice for past quarters but I believe the company knows the Street is onto its game and is now ready to step up to the plate and concede that they are in really good shape, regardless of economic conditions, to capitalize on an excellent product mix and unmatched company momentum.

The Mac line of computers was very strong, making record sales during the quarter, and culminating with 2.16Million units sold. The music player iPod line sold 10.2 Million units and the company added sales of almost 1.2Million iPhones. The Phone/Media revolutionary device was stronger than even very bullish analysts had expected. It was clear that the decision by the company to cut the price of the device by $200 late in the quarter helped to spur furthur additional sales. Apple cited a favourable tax rate, favourable component costs, a weaker US currency and good seasonal trends, as all attributing to the record results.

Even with a warning to analysts that some of these trends will become more normalized the company still guided 3 cents higher than the Street had expected. If Apple sticks to its previous trends of posting a guidance number that it is very confident in making than Investors everywhere should feel almost euphoric as to what an earnings result the company could be in for come January. As Apple's stock has rallied to $174 before the results the company growth metric were expanding almost into overvalued territory. Forward P/E and trailing P/E ratios were both inflating and PEG numbers were getting higher than many technology competitors.

Apple's trailing ratios will come down slightly based on Monday's closing price. At $174 the P/E stood at 49 with trailing earnings of $3.55/share. After the results trailing P/E stands at 44 on $3.94/share in earnings. With the stock up to $187 in after hours trading the P/E climbs back up to 47.5. Investors are clearly bullish about growth in all sectors for Apple. The forward guidance for the January quarter puts trailing earnings at $4.22/share. At current trailing P/E ratios that puts a target price of $198 on shares going into January. It's no surprise that analysts have seemingly stumbled over each other of late increasing their own price targets for Apple stock. While all the bullish sentiment can be enamouring the realist trader must re-think future possibilities. Apple hitting $200 by January of next year represents about a 7% gain, and for a stock that has seen a 20% rise in 1 month and a 90% rise in 6 months, that's actually slowing momentum. Keep in mind I am warning momentum traders not long term investors. The belief in Apple's continued execution has benefited investors tremendously over the last couple of years and with this product mix that is almost assured to continue. As such any profit taking dips should be well welcomed by the ever growing base of Apple believers.

With the continued growth successes in the Mac computer line, iPods fresh and ready for Christmas and the iPhone just coming into its own, the future is still very bright for Apple as a company and as a stock. With these positive results and bullish forecasts there seems to be little resistance in Apple's path to $200 and beyond.

Disclosure: Author is long AAPL

Hewlett-Packard Firing on all Cylinders with Earnings Beat

Hewlett-Packard (HPQ) reported today after the close. The results were nothing but positive as the largest computer maker continued to take market share from its main rival, Dell (DELL). The computer maker reported $0.71/share earnings excluding items on $25.4Billion in revenues.

Both figures topped estimates and the revenue number showed top-line growth of 16%. That's good news for HP investors, however the better news came with the company forecast for next quarter. Forecasting 2-3 cents higher than previous analyst estimates showed that indeed all businesses are doing very well and growth is set to continue worldwide. Shares of the company hit a 52-week high of $49 recently and have not fallen as hard as other growth tech names such as Apple (AAPL) or Research In Motion (RIMM).

The growth in PC shipments for the company shows that it is on par with high growth Apple machines in the sector as both companies continue to leave Dell in the dust. IDC market research reports showed recently that HP increased its PC shipments by over 35% year over year. Dell is trying desperately to lure customers back but HP is working very well in all channels and is the PC of choice while Apple is enjoying its great success with Macs.

The cost cutting plans implemented by management a couple years ago are paying dividends now as HP competes in all PC sectors and is widening its market share lead across the globe. Even the printer division is doing better as market share is being taken from Lexmark and Dell here also. HP trades at a forward P/E multiple in line with IBM and several points cheaper than Dell. This is a bargain of a growth technology company with the Price-Earnings-Growth ratio now under 1.

The market trends currently don't support heavy bullish buying as credit fears and liquidity problems sweep across all sectors but a winner is clearly here in HPQ and its difficult to stand idle when solid growth like this is available for such a discount. Hewlett-Packard proved in its latest quarter that it is the biggest and best PC company in the world. Investors should take notice.

Disclosure: Author is long AAPL and holds no position in HPQ, DELL, RIMM

Is the Hype behind the VMware IPO Worth the Investment?

VMware (VMW) is a software service unit that creates various virtualization solutions for a multitude of consumers. EMC Corporation (EMC) is behind VMware and is spinning about 10% of the company in the IPO that is due to open trading August 14th. EMC acquired VMware in 2004 for around $600Million and if the hype machine behind the IPO translates into interested investors, the company will surely reap the benefits. The biggest sell of virtualization software is the ability to run multiple operating systems on the same physical machine at the same time. With the amount of money that is spent on server infrastructure within American corporations this, some argue, is the future of computing. Less physical boxes running simultaneous split operating systems will save incredible amounts of money, use less resources and provide increased flexibility as the world of multi-core computing becomes reality.

VMware also creates smaller scale solutions for consumers, such as its popular desktop virtualization tools that allow Apple (AAPL) Mac users the ability to simultaneously run Windows on their Intel-based iMacs or MacBooks. Apple's own solution called Boot Camp provides a similar functionality however the user is forced to reboot the machine in order to switch between Windows and Mac OS X.

This growing business isn't anything close to small peanuts as VMware did $700Million in Revenue last year and had $87Million in profit. Last quarter the growth continued as VMware reported $300 Million in revenue, representing an 89% increase year-over-year. EMC plans to issue 33 Million shares of the around 375 Million in VMware. That's right EMC is keeping almost 90% of the company out of public hands. VMware has certainly been popular among the huge market tech names as both Cisco (CSCO) and Intel (INTC) have stepped up and purchased small pieces of the firm.

Can VMware make the average investor money on IPO day? It's possible but I would be extremely cautious of over-paying for a tiny piece of this solid, growth company. Investors started to realize that EMC would actually be the safer way to get in on the VMware craze and shares of EMC jumped 8% today to $19/share, giving the company a market cap of $40Billion and a P/E ratio of 31. A company that showed growth of 20% last quarter and posts an estimated growth rate of 19% from this year to next is certainly attractive at P/E levels in the low 30s.

The hype behind VMware is icing on the cake for EMC investors, and this should be the safer, smarter play for those who won't get in on the ground floor when VMware's IPO price is announced. Ranges for the IPO have increased from the mid 20s to the high 20s with some analysts expecting over $30/share. There's also been talk that the company could open as high as $60/share. At $60 that would give VMware an implied market cap of $22Billion. Half the market cap of its owner EMC. That would be extremely high for a company that looks at estimates of $1-2Billion in revenue this year. In contrast, EMC had over $11Billion in revenues last year and sports of growth rate of almost 20%.

Virtually the entire market expects a red hot VMware IPO, no pun intended. Plenty of money will change hands and opportunities will be there, however, a word of caution for investors because if reasonable prices can't be found in the early going I would not recommend the chase. With EMC still owning 90% of VMware anyway, that should be the way to play this one.

Disclosure: Author is long AAPL, INTC and holds no positions in the other stocks mentioned

Apple Rides Strong Computer Sales to Blowout Quarter

One of the most anticipated earnings numbers of the season are in. Apple's (AAPL) quarter, which blew past street expectations showed that the company has got the motors running. The company reported $0.92/share vs. the $0.72/share the street was expecting.

First the raw numbers: 1,764,000 Mac computers, 33% growth year-over-year, which is 150,000 more than any other quarter in the company's history
9,815,000 iPods, showing that this business is still very good and growing at 21% year-over-year
270,000 iPhones sold in the first 30 hours of launch (June 29th from 6pm and June 30th), not half bad however with Wall Street expectations going from 200K to 700K this could be an area of contention.

Apple earned $818 million on $5.41 billion in revenues with gross margins increasing from 30% to almost 37% with management releasing a statement applauding the company results. However Apple shareholders know that this stock has been fueled in recent months by the announcement and build-up to the launch of the iPhone, and if this rocket is to continue to justify it's high valuation, the iPhone will have to be part of that limelight alongside the Mac and iPod businesses. One thing the iPhone hype did very well was get people talking about and looking at Apple's computers. With foot traffic in Apple stores at all time highs, how many patrons asking about iPhones and iPods thought to themselves "Wow, that's a pretty cool computer". I think it was plenty. As well as computers are selling for Apple this is admittedly only one leg of their 3 business strategy so part of management's opening statement may be troublesome for short-term investors.

Steve Jobs
"iPhone is off to a great start -- we hope to sell our one- millionth iPhone by the end of its first full quarter of sales -- and our new product pipeline is very strong."

No one can argue that it's off to a great start but with expectations being what they are, will this be trouble in the short term. This is either a case of analysts having no idea about supply and demand, or that the iPhone really is not as successful as initially hoped? Some street numbers called for as many as 700K iPhones to be sold over the first weekend, and there were rumors flying around that within a week 1 Million had been activated. Where these rumors were coming from, and their validity is certainly up in the air, but it seems like analysts really just had no clue. When the expectation window for 2 days of sales spans the range of 200K to 700K units, you know no one's reading the same book, let alone the same page. Either way selling almost 300,000, in a day and a half, of a device that fits in your pocket and costs as much as a Playstation 3 is certainly impressive.

With a stock that's fueled on expectations, lofty as they are, any signs of chinks in the armor will not be treated well. Apple's stock was halted upon the numbers release and when trading resumed after hours the shares found themselves down almost $4 to $133. Shares climbed back strongly and have been on the rise breaking new all-time highs essentially every minute as the conference call reveals more details about future iPhone software plans, and all other things Apple. Apple's shares are up almost $13 from their close of trading today.

Apple plays the guidance game very conservatively. The street thinks that $0.82/share is a decent estimate for next quarter and Apple executives low-balled everyone once again with $0.65/share and $5.7 billion in revenue. Apple continues to believe their high margins on things like flash memory are unsustainable, and they may be right. Those deals they cut for very large-scale continuous orders of memory are certainly paying dividends now, but it'll be difficult for the company to secure all the memory it needs with their growing sales and product base of iPods and iPhones. Analysts expect low-balled guidance from Apple and certainly will shrug this off.

What will end up being a big deal is the payment deal with AT&T for iPhones. Not only is Apple booking revenue over a 2 year period (Each iPhone sale will contribute 1/8th of its sale price in revenue each quarter over the 2 years), but AT&T is also reported to be paying Apple a hefty exclusive fee for each unit and a portion of the monthly service plan. According to executives, none of this revenue is seen yet or being counted. This is the type of news that could have Short Sellers running for the hills buying back their stock in the next couple of sessions.

In a recent article I wrote about putting the Muleta away and letting the Bull ride on Apple stock, well it certainly seems that management have put the company on a road to profitability never before seen in its history. This is something that has to be rewarded, and in After Hours trading the company sees its stock hit the landmark $150 per share number.

Bulls have seized control.

Disclosure: Author is long AAPL

Apple's Computers: Still A Growth Story

A report came out from market research firm IDC giving numbers and growth rates from PC's shipped. Link is here to AppleInsider http://www.appleinsider.com/articles/07/07/18/apples_u_s_mac_market_share_rises_to_5_6_percent_in_q2.html

The numbers show once again at how Apple (AAPL) is growing its market share in the US computer industry. In 2005 it was reported to have 4.4%, in 2006 4.8% and in 2007 5.6%. That's a lot of Macs in homes that have never had Macs before. The so-called "switcher". Steve Jobs frequently talks about Apple Retail Store foot traffic and how about half of Mac buyers are first time Apple computer buyers. This trend clearly shows just how true this statement is.
This rising trend emulates exactly how Apple's grown to become the third biggest music retailer in the US.

Call it the halo-effect from the iPod, the publicity surrounding the company lately with it's other products like iPhone or AppleTV, but one thing's for sure. Apple has its businesses clicking like never before, and its earnings numbers are expected next week. With the stock crashing through an all-time high of $140 this morning on these news you might think there's a sell the rumour buy the news opportunity prior to the quarterly earnings announcement. I wouldn't be so quick to jump on that side of the fence, while expectations for performance have never been higher for the company, they do have a juggernaut waiting in the hangar that hasn't had any official sales numbers released yet. This of course being the iPhone. While sales numbers for Macs and iPods are expected to beat consensus estimates, and handily at that, what the stock really needs to keep its upwards momentum is a clear indication that iPhones are flying off the shelves.

So what's the strategy going into earnings? I think like all growth orientated stocks you have to know what you're getting into and what the prospects are. If you're an iPhone believer and this it's truly the next big thing then get in now before the next run in Apple's stock really takes shape. A quick look at the Option interest for January 2008 shows some very optimistic investors as almost 50,000 call contracts are open for a strike price of 200. And as of today these options go for $3.60 a contract. A lot of money is being bet on the continued rise of Apple shares. So is it safer to go with the bullish herd or go against the grain and swim upstream on the bearish side of the stock? I for one believe a company as innovative as Apple, currently in the business growth cycle it finds itself in is a hard bet to pass on, so I've put away my Muleta for now and let the bull run.

Disclosure: Author is long AAPL

Thoughts on Apple Inc.

Apple's (AAPL) foundation of software is the driving point within all their products. Not to take anything away from the hardware, because Apple does design some of the best. However that is a smaller issue when you look at the company's successes.

With apple being able to customize everything within a given device due to native software fitting in native hardware, it certainly puts other companies behind from day 1. It would be very hard for a Verizon or a Sprint to come up with something like an OSX for their handsets, and just the same it'll be as difficult for Motorola or Nokia. On the flip-side Microsoft has Windows Mobile but it's designed to work on such a vast array of devices that it works very well on only a few.

The new OS X core of Apple's product lineup (upcoming Leopard Macs, iPhone, AppleTV and soon iPods) bring with it that level of functionality and ease of use that can only happen when a piece of software is designed to work with a piece of hardware. The iPod's success came from it's ease of use and the iPhone is, and will (through software updates) strike(ing) the exact same cord. This will in turn extend to a larger halo effect which will in turn drive more users towards the Mac platform.

Which, in the investment mind frame should launch Apple's future valuation to $150B and beyond.

Disclosure: Author is long AAPL