Apple geared up for Monster Earnings

Published by • January 21st, 2008 RSS News Feed

 

A funny thing happened the last time Apple released its earnings. Looking forward to Q1 2008, Apple, which is notoriously conservative when it comes to earnings guidance, projected an aggressive EPS of $1.42 a share. With Apple’s conference call set for tomorrow, analysts are expecting an EPS of $1.60. And when all is said and done, look for Apple to release earnings tomorrow that will blow both of those numbers out of the water.

 

Though its stock price might indicate otherwise, Apple has never been better positioned to succeed, improve, and impress. Apple’s line of Macbook laptops are selling at a record pace. The iphone turned the telecommunications industry on its head and was able to garner an impressive share of the smartphone market in less than 8 months. Apple stores are constantly packed with customers, its lineup of ipods has never been more diverse, and that’s just the beginning of the story.

 

How does this translate into higher earnings?

 

1) iPods

 

Put simply, Apple is selling more ipods than anyone could have anticipated last October, save perhaps Apple. For months, analysts were droning on about how the market for mp3 players was becoming saturated and that everyone who wanted an ipod most likely already had one. What no one envisioned was just how popular Apple’s newest line of mp3 players (the ipod Touch and the updated ipod nano) would sell. Even as I write this now on Wednesday afternoon, 5 of the top 8 items on Amazon’s bestselling electronics list are ipods. Wall Street is expecting ipod sales of around 24 million units, but don’t be surprised to see Apple with a number close to, if not more than, 25 million units sold.

 

Apple has been successful in continuously introducing new ipod models. But more importantly, each new ipod model has something more to offer when compared against earlier models. This is what continues to drive the phenomenal sales growth of Apple’s lineup of music players and what will undoubtedly be the reason why ipod sales will be larger than expected.

 

2) Macs

 

Looking past the mp3 player market, Apple’s refreshed line of imac desktop computers are also selling at an unprecedented rate. In a recent note about Apple, RBC said that 25% of Best Buy representatives contacted noted that Macs were the number one selling PC at their stores. This is an impressive number considering that Apple only accounts for 3 or so percent of the OS market share. With that said, the bulk of Apple’s Mac revenue will be coming from its fleet of notebook computers, the macbook and macbook pro. Just this summer, reports came out showing that 1 out of every 6 laptops purchased is a Mac and there is no reason to think that this trend was any different this past holiday season.

 

Apple’s Leopard (OS X.5) operating system has also been selling extremely well, and has decidedly outpaced sales of its previous operating system, Tiger (OS X.4). Leopard was released this past October and it was impossible to predict how the release (which was delayed) would turn out. Would there be bugs? Would users care about its new features? In fact, the release of Leopard was initially delayed so that Apple could devote more of its resources towards the iphone rollout in June ‘07, and there were definitely some questions as to whether or not Leopard was even polished enough to be released. As it turns out, Leopard has been a resounding success. Though there have been a few bumps along the way, users are by and large happy with Leopard and can expect to see a slew of free incremental updates to the OS in the next few months. Tellingly, a recent report noted that in the last month and a half, 81% of Apple buyers indicated that they were happy with their purchase of a Leopard loaded computer.. In comparison, around 50% of Windows XP owners were satisfied with their purchase, and only around 25% of Vista owners were pleased with theirs.

 

 

When you take all of this together, it’s clear that Apple desktop and notebook sales

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are surging. Leopard is also selling extremely well, and might even be behind the explosive growth in Macs this past quarter. That said, expect to see stronger than expected Mac sales announced tomorrow.

 

3) iPhone

 

Steve Jobs recently announced at Macworld that Apple has already sold 4 million iphones. Wall Street was seemingly unimpressed as it was hoping for sales of 5 million. The fact of the matter is that the 5 million magic number was never a goal of Apple’s nor even desired by Wall Street analysts. “5 million iphones sold” was a rumor that made its way around the net with no substantive evidence to back it up. What Apple has stated, however, is that it would like to sell 10 million iphones by the end of 2008, and before 2008 even began, Apple had almost reached 50% of its goal.

 

Apple is likely to see impressive iphone sales this past quarter given its recent and controversial price cut, coupled with sales overseas. While there are reports out of Britain that the iphone is selling a little bit more lightly than expected, sales in other countries, such as France, are doing significantly better than expected. All in all, the margins on Apple iphone’s are pretty high, and when one factors into the equation the monthly stream of revenue Apple receives from AT&T, Apple’s bottom line is looking pretty good this quarter.

 

Conclusion

 

Apple’s initial guidance was $ 1.42 a share on revenue of $9.42 billion, with Wall Street expecting an EPS of $1.60. Given all of the above, however, look for Apple to destroy those earnings estimates with an EPS closer to $1.83 dollars a share and revenue well above $9.5 billion. There is no doubt that Mac computers, ipods, and iphones are selling extremely well, and after tomorrow’s earnings report we’ll see that they’ve been selling even better than anyone could have anticipated.

Itola Author

is a business / tax attorney from the windy city. Yoni is also a gadget enthusiast who enjoys writing in the third person.
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