Apple Q2 Results Are Not The Story, But Guidance Will Be

Apr.22.13 | About: Apple Inc. (AAPL)

Apple (NASDAQ:AAPL) will release Q2 results tomorrow and hopefully provide some guidance for the balance of the year. Does recent IDC data on PC, smartphone and tablet markets give us any useful insight into what to expect?

IDC reported PC sales fell 14% year-over-year in the March 31, 2013 quarter. Likely Apple is not immune. Look for 5% to 10% lower Mac and Macbook sales. I will use 3,600,000 units. Apple cut prices on some of these products in the fourth quarter, so I am going to use a lower ASP of $1,250 for my forecast.

IDC is calling for 192 million tablets to be sold this year, an increase of 57% from 122 million in 2012. At the same time, it is forecasting Apple's share of the tablet market to fall to 46% this year from 54 in 2012. This suggests a 30% growth rate for Apple's tablet offering. Look for iPad sales to be about 30% ahead of 2012 or about 16 million units for the quarter. The mix is shifting to iPad minis, so I am going to use an ASP of $450.

IDC reported that Apple and Android accounted for 87% of 2012 smartphone market of 722 million units. Apple accounted for 18% of these.

IDC forecasts 922 million smartphones will be shipped in 2013. Apple ended 2012 with a 21% market share. Assume it can hold a 20% share for 2013, and for the year as a whole ship 184 million units. For the March quarter, look for 40 million iPhones this quarter, allowing for the seasonally low period. Many of these will be older models at somewhat lower prices. I will use $625 per unit for my forecast.

Adding up the foregoing, the March quarter for Apple might look like this:

Product

Units sold

ASP

Revenue ($B)

Mac PC's

3,600,000

$1,250

$4.0

iPads

16,000,000

$450

$7.2

iPhones

40,000,000

$625

$25.0

iPods

7,000,000

$170

$1.2

Other revenue

$3.5

TOTAL REVENUE

$40.9

GROSS MARGIN (37.5%)

$15.3

EXPENSES

$3.8

TAXES (26%)

$3.0

NET INCOME

$8.5

Click to enlarge

Apple is a large company, but has relatively few moving parts. As a result, the structure of its income statement is not complex, and every forecast need only deal with broad assumptions about a few items. The data presented here are neither intended to be precise or prescient. Rather, this article sets out a simple table where you can plug in your own estimates. What is immediately apparent is that the total revenues and income are really sensitive to only two line items - iPad and iPhone sales and their associated gross margins.

The quarter will be a non-event, in my view, unless it is a major miss and that seems unlikely. Apple shares trade at very low multiples on all metrics. The market seems more concerned with future product plans and the competitive environment than in short-term earnings fluctuations around an already robust level.

Net income of $8.5 billion would approximate $9.00 per share in earnings. I suspect the actual earnings will fall in the range of $8.00 to $10.00. If they do, and regardless of where in the range they fall, the real issue for shareholders is the guidance for the balance of the year, and any news on product plans.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I am short 1,500 Apple puts, which is a long position