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Apr 23, 08 - 04:42 pm Comment from: Macromancer

Can't wait to see how TheStreet.com spins this negatively. Probably gross margin.

Only 1.7 million iPhones for the whole quarter. Jesus, that 3G iPhone better come quick.

Boo-Yeah!

-- Hano

And, of course, AAPL is down after the news

Well, actually Apple is UP on the day $2.69. It may have dipped from its peak, but the trend is still up.

Afte the initial pop up to $171, AAPL is trading down to $155 and now back up to $158 for the following reasons:

1. Gross margin was 32.9% vs 33.8% expectations.

2. Guidance for Q3 earnings per share stinks, per usual. Interestingly, AAPL guided revenue in line, $7.2 billion vs $7.16 billion expectations.

3. Earnings beat was only $0.09, vs an average of $0.18 over prior four quarters. Earnings beat is trending down sequentially from last quarter.

4. iPhone sales were ~1.7 million vs street expectations of ~1.8 million.

Yeah, but it's going back up!

Again, the low-ball guidance. They are pulling a Google. They will under promise and over perform, but The Street is not going to go for the lowball guidance tactics. Come on Steve, the 3G iphone is coming out and you know that people from all over the world will be lining up to join the party, yet you're predicting only $1/shr in earnings for the next quarter? Either the 3G iphone isn't coming out soon or this is just another ludicrous lowball figure. Either way, the stock is going to vacillate b/w its 25% and 50% Fibonacci lines, (base 115, peak 200) translated to (135 to 155) until this uncertainty works itself out.

rw.

AAPL conference call is now starting. AAPL trading at $158.50

iPhone weak.
Real weak.
That is the trouble with the phone biz - it is all fashion. What is in this month is out next month. And nothing seems to last longer than 6 months.
(Nokia sells more phones in a weekend than Apple sold in 90 days...)

Read at the bottom of CNNMoney where some idiot said "Apple is still a niche player"
These are M$ diehards at work, folks.

Reuters is reporting that AAPL CFO Peter Oppenheimer is guiding gross margin to be flat in the June quarter, compared to this March quarter.

This is being received negatively by the market. AAPL currently trading at $156.70.

(Strangely enough, this information is being published separate from the conference call, which is still ongoing.)

Very nice result indeed, it would be nice to know the iPhones sales in Europe for Q1/2008, I think it has been extremely low (because US sales have certainly been strong and most iPhones hacked abroad are most likely bought in the US as well)

Margin of 32.9% was primarily (~80%) due to expected decline of Leopard in its second quarter. (Initial quarter of major OS release always sees highest sales.)

Other factors affecting gross margin were:
Shuffle price reductions
International price reductions, due to currency fluctuations
iTunes sales mix favored lower gross margin
Sequential decline in revenues from holiday quarter.
Favorable commodity pricing (memory, LCDs) environment.

Long and short, Apple's gross margin was 32.9%, which is 90 basis points higher than Apple's previous guidance of 32.0%.

This commentary is being favorably received by the market. AAPL currently trading at $160.60.

Ohhhhhhhh- Fibonacci lines

I got ya Fibonacci line righeeet heee-ah!

Apple have a low guiding because they will not recognize ANY iPhone revenue next quarter until after the 2.0 software is released!!!

This is because of accounting rules.

Apple's profit forecast missed analysts' estimates in eight of the nine previous periods. The company topped its forecast in each of those quarters.

Regarding iPhone, Apple says: We expected iPhone to decline more on sequential basis than it did. Started to experience stock out. Inventories are low. US stores have relative more stock-out, probably because they are primary source for phones bought for unlocking.

AAPL reiterates its confidence in hitting its 10 million goal of iPhone sales in 2008. This will include new geographies, and includes both "locked and unlocked" units.

There will be revenue recognition delay for new iPhone hardware sold on or after its March 6 announcement of the 2.0 software free upgrade. When this 2.0 software is delivered, then the revenue will be recognized. Reiterate 2.0 software will be delivered in late June. The 33.0% gross margin forecast incorporates this revenue recognition delay.

This commentary is being favorably received by the market. AAPL is currently trading at $161.25

Okay, let's see...

Apple sold 1,703,000 iPhones this last quarter. So they need to sell 2,765,667 for the next three quarters in order to reach ten million.

Doesn't look promising...

Analysts are probing the quality of the earnings, but so far AAPL execs are doing a good job explaining the factors. "Wow, lots of detail" was the response by one analyst after Apple explained the Q2 margin break down.

Third question about gross margin is being asked. AAPL trading at $160.89

Revenue recognition issues for iPhone may lead analysts to reduce earnings estimates for Q3.

Analysts continue to question Apple execs about Q3 gross margin.

AAPL trading at $160.50.

Whether you're a fanboy or a stock market short, the truth is that Apple beat consensus expectations handily. Growth may be slowing somewhat, but the performance is still stellar. We must take into account that more savvy consumers are holding off for the 3G iPhone. My take on margins is that a flood of Europeans are coming to the US and buying iPhones over here, rather than at higher prices in Europe.

Recently, I traveled to Minneapolis, and during my stay, I visited the Mall of America for the first time. I casually asked Apple Store staff there how many Europeans come over and buy iPhones. Their answer: tons of them.

(The Mall of America is located very close to the Minneapolis-St. Paul International Airport. And there are a ton of very cheap direct flights to Minneapolis from London, France and Scandinavia. I had seen promotions to Europeans to fly to America on shopping junkets, given how strong the Euro has become versus the dollar.)

It's prudent to guide the street conservatively. I am completely opposed to guidance as a practice. It sets expectations that often cannot be met, and could result in badly beaten down share prices, even though earnings are very strong. And I believe that it's an excuse for stock market analysts to be just plain lazy. That said, with a softening economy, it's good to hedge your bets, so conservative guidance is prudent, even if the stock price is soft for a few weeks. Smart investors choose stocks (really, companies) for the long run anyway. If you don't you're merely a speculator, not an investor.

To say that earnings "beat" was "only" $.09 above consensus estimates is insane. Most companies would be thrilled to beat the street by a penny. But such are the heightened expectations of Apple.

As it is, Apple is beginning to encounter the law of large numbers. It's hard for Apple to grow at the rate it has in the past few years. iPod sales will surely level off, simply as the market is saturated. But that is a good problem to have, instead of the challenges the company faced in the now-distant 1990s.

It's sad how fickle Wall Street can be. It rode Apple stock up, then recently savaged it in a concerted attack to take profits and drive its stock price down. But with the coming 3G iPhone, that might change. It's amazing what greed will do.

In all, kudos to Apple. The company continues to perform and exceed expectations in a weakening economy. Steve Jobs, his management team and its employees worldwide should be proud.

"Apple have a low guiding because they will not recognize ANY iPhone revenue next quarter until after the 2.0 software is released!!!

This is because of accounting rules."

Wrong, they will only not recognise the value of the upgrade, which they can pretty much arbitrarily set anywhere from a dollar on up.

Wow, from reading the comments I had no idea so many economists read MDN. Remember to get your news from the source, not the aggregate, and not the aggregate's comment section .... sigh

Analysts again asking about the tax rate. Another concern is that the lower tax rate (29% vs 31% last quarter) means that the EPS beat really wasn't as good as the headline $0.09.

Apple says the reason for the tax rate decline was lower interest earnings, and foreign tax rates.

AAPL says previous tax rate forecast for fiscal year was 32%, and is now down to 31% for the year. To get to that level, there was an adjustment down to 29% for Q2. For Q3 it is expected to be 31%.

Yet another question about revenue recognition delay. "If you are providing the software for free, why are you deferring the revenue recognition?" Answer: Customers who bought on or after the annoucnement date (March 6) are presumed to be aware of the 2.0 software announcement, and will expect to have those features in their phone. So until the software is actually delivered, hardware iPhone revenue will be deferred.

Lots of analysts are focusing on revenue recognition, gross margin, and tax rates.

AAPL is currently trading at $161.43.

Peter,

In the holiday quarter they'd probably clear 3-4 million alone, especially if the 3G iPhone is released. If the current model stays on the market with price reductions they might do even better.

MDN has constantly been chanting about the iPhone bloobath, how laughably low the estimate of 10 million sold iPhones in 2008 has been, I wonder if MDN still feels the same way, somehow I doubt it..

AAPL currently trading at $162.00.

AAPL has just got back up to $162.

Apr 23, 08 - 05:49 pm Comment from: gzero

@Qinko,

How many different phones does Nokia sell? At last count, it was about 40 DIFFERENT MODELS!

Now, how many different iPhone models does Apple sell?

Let me help you:

1!

Dumb comparison you made. Come back when you get a clue.

"I wonder if MDN still feels the same way, somehow I doubt it.."

Despite the fact that all Fanboy Frigtards know that 3G offers absolutley no advantages over 2G it is clear that the reason for very bad iPhone sales this quarter is simply that the uneducated masses are waiting for the 3G phone to be released and will buy them in their millions.

This as usual is a master stroke by Steve.

OK, now AAPL is $162.58.

So now it doesn't look like it's going to tank!

Yet another question about gross margin rates.

Shaw Wu, analyst at AmTech, who downgraded AAPL to neutral earlier this week, doesn't ask any financial questions. He asks about PA Semi instead. Apple execs decline to comment.

AAPL currently traded at $162.90.

"Dumb comparison you made. Come back when you get a clue."

Even with 40 models, Nokia's selling more on average of each model phone in 90 days than Apple sells of it's one model.

That would seem to be a fairly valid comparison.

The 2 numbers that jump out are the 51% increase in mac sales over the previous year quarter and 44% of revenue coming from overseas sales.

How much higher do mac sales need to go until the magical "tipping point?"

Apr 23, 08 - 05:57 pm Comment from: AppleMacMan

This is a great time to get on the Mac bandwagon! And a great time to jump off the Microshaft bandwagon! 

Analyst questions why US stores had a shortage of iPhones, but the phone was readily available through carriers and in Europe. Apple COO Tim Cook replies once iPhones have been shipped to a carrier, Apple's flexibility to move that inventory around to other carriers or geographies is "low". Also clarifies that Apple learned from its current experiences.

AAPL currently trading at $163.80.

Now AAPL is taking off!

$163.25!

Apr 23, 08 - 06:00 pm Comment from: Ampar

"Read at the bottom of CNNMoney where some idiot said 'Apple is still a niche player'"

That's the same guy that drives with his turn signal on for hundreds of miles on the highway. Oblivious.

"How much higher do mac sales need to go until the magical "tipping point?""

If you look at the sales graphs for the whole year, there is no tipping point, just a new plateau.

I have a 3G phone and 7meg connection which I connect to my laptop, there is no chance in hell I switch that to some dogslow 2G iphone, no advantage? c'mon, get real.

Did anyone hear any mention on the effect of apple TV "take 2" rollout. I didn't notice any numbers specific to this product.

Conference call has ended.

Overall, commentary from Apple execs was adequate but not impressive. Certainly nothing there to ignite the shares or convince the analysts to ignore their concerns about gross margins, tax rates, product demand, revenue recognition, and the like.

So the analysts will probably publish some negative notes, and earnings estimates and gross margin rates for Q3 and FY08 may decline.

AAPL will probably percolate around the $163 mark, and may even squeeze higher in the short term (say up to $167 or so) to punish the shorts. But fundamentally, this earnings report and conference call are a recipe for AAPL to follow the market.

That's dangerous, because the market was expecting AAPL to be a market leader (along with GOOG and AMZN), not a follower.

I would expect AAPL to consolidate sideways and trend with the market in the days ahead, with a downward bias. Stock won't blow up like it did last quarter, but until more news is forthcoming, AAPL won't be shooting to $171 in the short term either.

AAPL currently trading at $162.00

@gzero -
apple has lots of different ipods and computers. should they dump them all except one?
apple is too slow to bring out new product.
the 1 phone apple has is apparently not doing that great. In Europe they are trying to dump them for 99Euro each - a discount of 200 Euro each.
apple needs to bring out more iphones faster and update them quicker. and get rid of the single provider shindig.

"Did anyone hear any mention on the effect of apple TV "take 2" rollout. I didn't notice any numbers specific to this product."

No questions on the conference call referred to AppleTV.

AAPL currently trading at $162.27.

Here's the important info ...

Mac revenue and unit sales up SIGNIFICANTLY
iPhone on course to sell 10 mil units in 2008
iPod unit sales still grew by 1%

Mac sales grew at over 3 times the PC sales rate. Think about that.
And that was during a " recession " period.

Apple is on the right track and Steve & Co. will keep the new products coming down the pipeline.

Buy at $160 and beat the rush.

"I have a 3G phone and 7meg connection which I connect to my laptop"

You cannot compare the experience of browsing on a laptop to using the superior iPhone at dial up speed. Switch to an iPhone, you will find that the slowness loading pages is just part of Steve's master plan for world domination by capturing 0.1% of the world cellphone market. Capturing 0.1% of the world cellphone market is like handing a crushing defeat to Nokia and Motorola.

Actually, if you look at a 'moving' average - i.e. adjusted to remove regular seasonal fluctuations - the graph of Mac sales is moving exponentially upwards. And has been, since 2005.

Apr 23, 08 - 06:18 pm Comment from: Zune Tang®

MDN, I'm keeping my eyes open for the updated version of this story which will have the correct number of MACs sold last quarter:

Apple shipped 2,289,000 Macintosh computers during the quarter…

should read

Apple shipped 289 Macintosh computers during the quarter…

Thank you in advance for the correction.

Your potential. Our passion.™

Apr 23, 08 - 06:19 pm Comment from: R

It took an awfully long time for 10 million iPods to get sold. For a 1.0 device, iPhone is shockingly good and very successful. It will continue to be so as time goes on.

As a potential stock purchase, Apple is not simply compared to its own performance, but that of its peers. This is one other factor making Apple stand out. No one has the stellar products Apple does right now.

All is well.