Did Apple Inadvertently Pre-Release Its Earnings?

| About: Apple Inc. (AAPL)

In a lawsuit dated April 15, 2011, Apple (NASDAQ:AAPL) alleges that Samsung (OTC:SSNLF) violated its intellectual property by basically ripping off its iPhone and iPad design. But, more interesting than the lawsuit itself, is the financial information contained in the lawsuit. Apple's earnings are due out after the bell today, but we've surely gotten a big sneak peak into what to expect.

As first reported by Horace Dediu at Asymco, it appears that Apple may have inadvertently or intentionally pre-released a large part of its earnings.

On page 4-5 of the lawsuit, Apple lays out significant details regarding its iPhone, iPad and iPod unit sales (see below):

  • Page 4: "As of March 2011, more than 108 million iPhones had been sold worldwide."
  • Page 4: "By March 2011, Apple had sold over 60 million (iPod touch) units."
  • Page 5: "By March 2011, Apple sold over 19 million iPads."

The Facts
Apple's fiscal second quarters take place during the months of January, February and March. And we know exactly how many iPhone, iPod and iPad units Apple sold prior to that period. Thus, in order to determine the exact minimum number of units Apple sold during Q2 2011, one need do nothing more than subtract the unit sales stated in the law suit from the total number of units known to have been sold prior to January 1, 2011.

iPhone Sales: 18.1 million
Prior to Apple's fiscal Q2, we know that Apple has already sold 89,971,000 iPhones. So, according to the lawsuit that claims Apple sold 108 million units "as of" March 2011, we know that Apple sold around 18.1 million units. It could be way more if the terms "as of" refers to March 1. "As of March" could also refer to the end of the month, but we'll get to that in a moment.

iPad Sales: 4.2 million
Prior to Q2 2011, Apple sold 14,798,000 iPads, which suggests according to the lawsuit that Apple sold at least 4.2 million iPads. Again, we need to determine what the terms "by March" actually means.

iPod Touch Sales: 4.5 million
Prior to Q2 2011, Apple sold 55.5 million iPod Touches, which suggests according to the information contained in the lawsuit that Apple sold at least 4.5 million iPod Touches.

The Analysis
The big question in this data is what exactly is meant by the terms "By March" and "As of March?" Does the fact that Apple used the terms "As of March" when referring to the iPhone suggest that Apple may be discussing different time frames than when it used the terms "by march" when referring to the iPod and iPad? These are the key issues in the analysis.

It seems somewhat peculiar that Apple would use the terms "as of March" when referring to the iPhone and then change the terminology to "by March" when discussing the unit sales of the iPad and iPod Touch.

First, I should mention that 18.1 million iPhone unit sales blows away not only my expectations, but absolutely decimates the Wall Street consensus 16 million units.

Yet, if Apple only sold 4.2 million iPads as suggested by the lawsuit, I think a lot of people on Wall Street will be somewhat disappointed. Most analysts were looking for Apple to sell more than 6 million iPads on the quarter.

So, while this lawsuit confirms that Apple blew away iPhone expectations, it isn't clear whether the company might have missed on iPads.

Here's the best way to confront this data. If the timeframe Apple used for iPhone sales is the same timeframe used when describing iPad unit sales, then I think it's more likely that Apple did in fact miss on the iPad number. Here's why:

If the terms "As of March" is read to be an equivalent time-frame as indicated by the terms, "By March," then the date is probably referring to the end of March. For it is far more likely that Apple sold 18.1 million units by the end of March than it is for Apple to have sold that many units at the beginning of March.

Thus, the logic is simple. Because Apple probably didn't sell 18.1 million iPhones at the beginning of the month, then if the time-frame used for iPhone sales is the same time-frame used for iPad sales, it necessarily follows that the iPad sales number is 'through' the month of March. Confusing? It shouldn't be.

To repeat, the reference to iPhone sales is most likely a reference through the end of the quarter due to the fact that there's no way that Apple sold 18.1 million iPhones in just 2 months. This means that if the time frame Apple uses when describing iPad, iPod and iPhone unit sales is the same exact time-frame -- i.e. through the month of March -- then it means iPad sales probably missed expectations.

Now there's definitely an alternative theory here. Because Apple used different terminology when referring to the iPhone time-frame -- "As of March 2011" -- than when referring to the iPad and iPod touch -- "By March 2011" -- Apple could potentially be using different time frames. Maybe "By March 2011" means by "early" March whereas "As of March" means by the end of March.

The point here is, while we know that Apple decimated iPhone unit sales estimates for sure, we can't be positive that Apple missed on iPad sales. Who knows what "By March 2011" means. I know that attorneys are extraordinarily careful when drafting complaints so I'm pretty sure that Apple's using different terminology when referring to the timeframe for the iPhone than when referring to the timeframe for the iPod Touch and iPad probably means something. We'll find out in just a few hours.

Disclosure: I am long AAPL.