Are Apple's Earnings Forecasts Too Low?

| About: Apple Inc. (AAPL)

Analyst consensus for the quarter is $1.08. Seems way too low. In fact, it's way off base again. After all, the analyst community traditionally undervalues Apple's (NASDAQ:AAPL) ability to make money. The last four quarters, Apple surprised by 8.4%, 10.2%, 13.5%, and 28.1%. Next quarter should be no different.

Remember that iPhone sales are recognized over an eight quarter period. Those iPhone sales have been accumulating and are about to snowball into declared profits. At the end of last quarter, 13 million had been sold. One eighth of those profits will now be recognized this quarter. How much is that? To help figure that out, we must first determine the net profit of iPhones sold. Last quarter, Apple sold 4.4 million iPhones. In its Q1 2009 earnings release, Apple posted $699 million in non-GAAP earnings adjustments to help account for these. That works out to a profit of $159 a phone. It's actually more because some of the GAAP earnings are backed out when the old iPhone sales are removed in factoring the non-GAAP. We'll take the $159 as a very low ball figure. Therefore, the previous 13 million iPhones should generate earnings of $2.07 billion over the course of their 24 month subscription. One eighth is recognized this quarter, $258 million or $0.29 a share in profit.

Apple's cash alone brings in $675 million in interest a year. Take out taxes and you get $0.13 a share.

So, before Apple sold one product this quarter, it's already brought in $0.42. And, as mentioned, that's a very low ball estimate of the old iPhone contribution.

Will this quarter's earnings from Apple's notebooks, iPods, desktops, software, and new iPhones only come to $0.66? Most unlikely.