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An early analysis of Apple's Fiscal Q3 2010 seems to indicate that Apple (NASDAQ:AAPL) is on tap to significantly beat analyst estimates yet again. Last quarter was one of the biggest blowouts I've ever seen Apple report, and if major upward revisions don't start rolling in, it appears that Q3 can give investors another staggering halt-trading type blowout. The current consensus estimates as published by Thomson Financial apparently do not in any way contemplate sales of the iPad. Seasonally speaking, Q2 is generally Apple's weakest quarter and so naturally one would expect Q3 to outperform. And while the consensus does in fact reflect this point in the revenue estimates, analysts seem to believe that Apple will see a sequential decline in EPS from earning $3.33 in Q2 to $2.98 in Q3. Something I find to be highly unlikely unless we see a massive collapse in Apple's gross margin. Yet, even though the bump up in the consensus revenue estimates from $13.499 billion in Q2 to a forecasted $14.37 billion in Q3 contemplates a more favorable seasonal quarter, it doesn't seem to take into account the 3 million iPads Apple is likely to sell this quarter, and the 9.3 million iPhones that Apple is on track to sell as a result of massive demand for the iPhone 4.

Personally, I think the consensus estimates as an average of analyst forecasts have little to no predictive value. Analysts seemingly have significant trouble in giving any realistic picture of Apple's earnings and are always behind the curve in judging fundamentals. They recommend that you sell Apple at $80 and then to buy at $280. While analyst estimates by nature must be conservative so as to not overestimate, they generally fail to find a middle ground and consistently get beat by too large of a margin. After a cursory look into Apple's Q3, I'm looking for Apple to report earnings of $3.78 on $15.371 billion in revenue versus the consensus of $2.98 in EPS on $14.730 billion in revenue. That's a $1 billion beat on the top line, and an $0.80 beat on the bottom line. I see higher revenue driven by strong iPad sales, and higher than expected resilience in iPhone sales going into the iPhone 4 refresh. I'm seeing the bottom line beat to be driven primarily by much stronger than expected gross margins in the face of a stronger dollar as domestic iPhone 4 sales prop up any weakness in overseas Macintosh ASPs.

In terms of the revenue breakdown from Apple's primary operations, I am looking for Apple to produce $1.950 billion in iPad Revenue, $3.906 billion in revenue from Mac sales, $1.6 billion in iPod sales, $5.58 billion from iPhone Sales, and a total of about $2.335 billion in revenue from iTunes, Software & Peripherals. This is a first look at Apple's Q3 2010 and my final estimates (likely to change) will be published as we get closer to earnings seasons. Once I get full NPD date, initial sales of the iPhone 4, and firm data regarding June iPod, iPad, Mac and iPhone sales, I'll revisit and revise these estimates.

Fiscal Q3 2010 Earnings Forecast by Bullish Cross Compared to Apple's Guidance (in Millions except for EPS)

Line Item

Apple's Forecast

Consensus Estimates

Bullish Cross Forecast

Earnings Beat

Revenue

$13,400

$14,370

$15,371

$1,001

Cost of Goods Sold

$8,576

-

$8,761

-

Gross Margin

(36%) $4,824

-

(41.5%) $6,379

-

OpEx

$1,830

-

$1,850

-

Operating Income

$2,994

-

$4,529

-

OI&E

$45

-

$50

-

Net, before taxes

$3,039

-

$4,579

-

Taxes

(27%) $820

-

(23.4%) $1,072

-

Net Income

$2,219

-

$3,507

-

Earnings Per Share

$2.39

$2.98

$3.78

$0.80

Outstanding Shares

928

-

928

-

Revenue Breakdown & Product Summary for Q3 2010 (Revenue in Millions)

Product

Unit Sales

ASP

Revenue in Millions

iPads

3,000,000

$650.00

$1,950

iPods

10,000,000

$160.00

$1,600

Macintosh Computers

3,100,000

$1,260.00

$3,906

iPhone Sales

9,300,000

$600.00

$5,580

iTunes

-

-

$1,225

Peripherals

-

-

$480

Software

-

-

$630

Total

-

-

$15,371

Apple's Quarterly Earnings & Projections FYE 2010 (in Millions Except for EPS)

Q1 2010

Q2 2010

Q3 2010*

Q4 2010*

FYE 2010

Revenue

$15,683

$13,499

$15,371

Cost of Goods Sold

$9,272

$7,874

$8,761

Gross Margin

$6,411

$5,625

$6,379

Operating Expenses

$1,686

$1,646

$1,850

Operating Income

$4,725

$3,979

$4,529

OI&E

$33

$50

$50

Net, Before Taxes

$4,758

$4,029

$4,579

Taxes

$1,380

$955

$1,072

Net Income

$3,378

$3,074

$3,507

Earnings Per Share

$3.67

$3.33

$3.78

Diluted Shares

919,783

922,878

927,878

Disclosure: At the time of this writing, the author holds no position in the equity markets. The information contained in this blog is not to be taken as either an investment or trading recommendation, and serious traders or investors should consult with their own professional financial advisors before acting on any thoughts expressed in this publication.

Source: Apple Should Blow Away Consensus, Again