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Wall Street investors are holding their breath as Apple (NASDAQ:AAPL) is set to report earnings after the close of regular trading this afternoon. This particular report will be one of the most crucial in the company's history as Wall Street and her analysts have completely written Apple off as a business that could thrive in a slower economic environment. In order for Apple's shares to recover from its recent 50% plunge in value, Apple will have to demonstrate its resilience in this slowing economy by both reporting strong earnings results and offering some compelling guidance.

In the past, Apple has consistently offered the Street ultra conservative guidance, basically rendering such guidance useless when it comes to how the company will actually perform. Yet, irrational investors on Wall Street continue to be completely preoccupied with Apple's meaningless guidance making it extremely difficult for Apple to rebound until management gets a clue that its conservative nonsense is not working in this particular environment. Apple should either take a page from Google's book and not offer guidance at all, or offer guidance that is more realistic in this skittish environment. Analysts polled by Thomson Financial expect Apple to post earnings of $1.11 in EPS on $8.05 billion in revenue fueled by sales of 2.7 million Macs, 10.5 million iPods and about 4 million iPhones. For Q1 2009, analysts are generally looking for Apple to report $1.66 in EPS on $10.6 billion in revenue.

I am looking for Apple to record approximately $1.25 in EPS on $8.343 billion in revenue. I expect Apple to sell 2.9 million Macs, 11 million iPods and about 7.25 million iPhones. I expect Apple to report that it reached its 10 millionth iPhone sales goal a full three months ahead of schedule. I expect gross margins to drop sequentially to 33.5%, operating expenses to rise to $1.310 billion, and OI&E to rise to $122 million. I expect Apple to post net income of about $1.33 billion after taxes of $474 million.

In terms of the revenue breakdown from Apple's primary operations, I am looking for Apple to produce $4.118 billion in revenue from Mac sales (2.9 million Macs at $1,420.00 ASP), $1.595 billion in iPod revenue (11 million iPods at $145 ASP), and a total of about $2.63 billion derived from its other primary operations (this includes revenue Apple recognizes through its other music related products and services, iPhone and related products & services, peripherals & other hardware, and software, service and other sales). The table below lists my estimates along with two other analysts whose opinions I highly respect.

Forecasted Income Statement (In Millions, except per share data)

Line Item

Apple's Forecast

Andy Zaky,

Bullish Cross

Deagol,

Stashbox

Turley Muller, Financial Alch.

Revenue

$7,800

$8,343

$8,333

$8,436

Cost of Goods Sold

$5,343

$5,548

$5,541

$5,736

Gross Margin

(31.5%) $2,457

(33.5%) $2,795

(33.5%) $2,792

(32.0%) $2,699

OpEx

$1,270

$1,310

$1,292

$1,270

Operating Income

$1,187

$1,485

$1,500

$1,429

OI&E

$118

$122

$122

$130

Net, before taxes

$1,305

$1,607

$1,622

$1,559

Taxes

(30.5%) $398

(29.5%) $474

(30.0%) $486

(29.0%) $452

Net Income

$907

$1,133

$1,136

$1,107

Earnings Per Share

$1.00

$1.25

$1.25

$1.22

Outstanding Shares

907,000,000

907,000,000

907,000,000

906,000,000


Segment Information & Product Summary (in Millions)

Line Item

Consensus Estimates

Andy Zaky,

Bullish Cross

Deagol,

Stashbox

Turley Muller, Financial Alch.

Macintosh Sales

2,700

2,900

2,880

2,961

Macintosh Revenue

-

$4,118

$4,072

$4,160

iPod Sales

10,500

11,000

11,000

11,200

iPod Revenue

-

$1,595

$1,540

$1,680

iPhone Sales

4,000

7,250

7,500

6,800

iPhone Rev. Recognized

-

$850

$894

$748

iTunes & Other Music

-

$800

$837

$811

Other Hardware

-

$460

$454

$467

Other Software

-

$520

$538

$559

Total Revenue

$8,050

$8,343

$8,333

$8,436

My Estimates Compared to Wall Street Analysts
The table below compares my estimates with Wall Street analysts. It should be noted that Kathryn Huberty from Morgan Stanley consistently provides earnings estimates which prove to be one of the worst on Wall Street. I fully expect the trend to continue when Apple reports earnings this afternoon.

Analyst

Revenue

EPS

G.M.

iPhones

iPods

Macs

Apple's Guidance

$7.8b

$1.00

31.5%

-

-

-

The Consensus Estimates

$8.05b

$1.11

30.5%

4.0m

10.5m

2.7m

Unpaid Analysts

           

Andy Zaky, Bullish Cross

$8.343b

$1.25

33.5%

7.25m

11.0m

2.9m

Deagol, Stashbox.org

$8.333b

$1.25

33.5%

7.5m

11.0m

2.880m

Turley Muller, Financial Alchemist

$8.436b

$1.22

32.0%

6.8m

11.2m

2.961m

Wall Street Analysts

           

Jeff Fidacaro, Merrill Lynch

$7.969b

$1.09

32.7%

3.88m

11.0m

2.7m

Gene Munster, Piper Jaffray

$8.370b

$1.17

32.0%

5.0m

11.0m

2.8m

Richard Gardner, Citigroup

$8.096b

$1.18

-

-

-

-

Ben Reitzes, Barclays

$8.00b

$1.11

32.9%

5.0m

 

2.761m

Mike Abramsky, RBC

$8.200b

$1.15

-

6.0m

10.8m

2.9m

Kathryn Huberty,
Morgan Stanley

$7.865b

$1.05

32.9%

-

-

2.8m

Toni Sacconaghi,
Sanford Bernstein

$8.151b

$1.14

32.0%

4.000

10.7m

2.783m

My Past Performance compared to Wall Street Analysts for Q2 2008
The table below compares my past performance with Wall Street analysts. The numbers highlighted in "blue" designate the closest estimate to Apple's actual report whereas the numbers highlighted in "red" designate the estimate which was furthest from Apple's actual report.

Analyst

Revenue

EPS

G.M.

iPhones

iPods

Macs

Apple, Inc.

$7.512b

$1.16

32.9%

1.703m

10.644m

2.289m

Andy Zaky, Bullish Cross

$7.449b

$1.31

36.0%

1.700m

10.5m

2.350m

Gene Munster, Piper Jaffray

$6.900b

$1.19

36.0%

1.6-2.0m

10.5m

2.100m

Shaw Wu, AmTech

$7.000b

$1.10

33.5%

1.5m

10.0m

2.150m

Richard Gardner, Citigroup

$7.000b

$1.23

36.5%

1.5m

9.5m

2.100m

Ben Reitzes, Barclays

$6.950

$1.05

33.2%

1.5m

10.3m

2.090m

Mike Abramsky, RBC

$7.200b

$1.11

34.0%

1.8m

10.5m

2.200m

Kathryn Huberty, Morgan Stanley

$6.634b

$1.10

35.8%

1.0m

8.5m

2.020m

Scott Craig, BofA

$6.900b

$1.07

n/a

1.22m

10.0m

2.021m


Notice how Kathryn Huberty of Morgan Stanley made the worst call in four out of the six major areas of prediction. She actually missed revenue by almost a cool billion ($815 million). How an analyst can miss that badly and continue to have any credibility in his or her coverage of a stock is beyond me. Credibility should be called into question when an analyst misses iPhone sales by 41%, iPods by a whole 2.1 million units and Macs by 269,000 units. I pointed out the obvious flaws in her analysis before and after earnings was released in Q2 2008. I also tried to point out that investors ought to ignore Kathryn Huberty's estimates and her meaningless downgrades of the stock. In September, she downgraded Apple two weeks in a row causing the stock to drop a cumulative 30 points or about 30% between the two downgrades. I still haven't figured out who is less intelligent: Kathryn Huberty or the irrational investors who continue to listen to anything she has to say.

Disclosure: Long Apple. 

Source: Apple Earnings: What to Expect (And Who Not to Believe)