Revising Apple's Outlook in Line with Reality

| About: Apple Inc. (AAPL)

Bullish Cross is readjusting its outlook on Apple (NASDAQ:AAPL) to a view that is more commensurate with the increasingly bleak economic environment. As unemployment continues to rise and discretionary income contracts, Apple will undoubtedly struggle to keep up its explosive growth in 2009. The current consensus estimates for 2009 have Apple earning $5.15 in EPS on revenue of $35.14 billion. While the current research data is less than favorable, the consensus is still overly pessimistic on the current period.

However, given the relatively high lack of transparency with regard to iPhone and Macintosh sales going forward, Bullish Cross holds an increasingly cautious view with regard to Apple's fundamentals and earnings estimates in 2009. Bullish Cross now expects Apple to earn about $5.78 in EPS on $36.591 billion in revenue down from $6.63 in EPS on $41.196 billion in revenue. This reduction in estimates is due in large part to Apple's intentionally making it more difficult, if not impossible, to track iPhone sales using IMEI data. However, if the third generation iPhone is well received by the consumer this summer or if the economic climate becomes substantially more improved in the latter half of 2009, there is ample room for Apple to handily beat these estimates.

For fiscal Q2 2009, I expect Apple to earn about $1.19 in EPS on $8.318 billion in revenue on a GAAP basis versus the consensus of $1.09 in EPS on $7.94 billion in revenue. The consensus estimates for Q2 are far more fairly stated than they've been in previous quarters. On a non-GAAP basis, I expect Apple to earn $1.59 in EPS on $8.798 billion in revenue. One can interpret the recent research data as indicating that Apple could sell about 10.5 million iPods, 2.45 million Macs and about 3 million iPhones.

Andy Zaky's Earnings Estimates for Q2 2009 (in Millions, except for per share data)

GAAP-Based Est.

Non-GAAP Est.

Difference

Revenue

$8,318

$8,798

$480 (5.7%)

Cost of Goods Sold

$5,490

$5,455

-$35 (0.06%)

Gross Margin

$2,828

$3,343

$515 (18.2%)

Operating Expenses

$1,370

$1,370

-

Operating Income

$1,458

$1,973

$515 (35.3%)

OI&E

$85

$85

-

Net, Before Taxes

$1,543

$2,058

$515 (33.4%)

Taxes

$463

$618

$155 (33.5%)

Net Income

$1,080

$1,440

$360 (33.3%)

Earnings Per Share

$1.19

$1.59

$0.40 (33.6%)

Diluted Shares

905,000,000

905,000,000

-

Click to enlarge


Revenue Breakdown by Product Summary for Q2 2009

Product

Unit Sales

ASP

GAAP Revenue

Non-GAAP Revenue

iPods

10,500,000

$145.00

$1.523 Billion

$1.523 Billion

Macintosh Computers

2,450,000

$1400.00

$3.43 Billion

$3.43 Billion

iPhone Sales

3,000,000

$660.00

$1.500 Billion

$1.980 Billion

iTunes

-

-

$920 Million

$920 Million

Software

-

-

$575 Million

$575 Million

Peripherals

-

-

$370 Million

$370 Million

Total Revenue

-

-

$8.318 Billion

$8.798 Billion

Click to enlarge

Andy Zaky's GAAP-Based Earnings Estimates for FY 2009 (in Millions)

Q1 2009

Q2 2009

Q3 2009

Q4 2009

FYE 2009

Revenue

$10,167

$8,318

$8,728

$9,378

$36,591

Cost of Goods Sold

$6,635

$5,490

$5,760

$6,114

$23,999

Gross Margin

$3,532

$2,828

$2,968

$3,264

$12,592

Operating Expenses

$1,406

$1,370

$1,410

$1,510

$5,696

Operating Income

$2,126

$1,458

$1,558

$1,754

$6,896

OI&E

$158

$85

$100

$180

$523

Net, Before Taxes

$2,284

$1,543

$1,658

$1,934

$7,419

Taxes

$679

$463

$490

$561

$2,193

Net Income

$1,605

$1,080

$1,168

$1,373

$5,226

Earnings Per Share

$1.78

$1.19

$1.29

$1.52

$5.78

Diluted Shares

901

905

905

905

904

Click to enlarge

Disclosure: No Position in Apple.