Why Does Apple Always Give Low Guidance? Is this a Rhetorical Question?

Apple (AAPL) is notorious for one thing: giving lowered guidance to their profits and revenues. Why do they keep doing this every single quarter and end up being wrong every single quarter? Why the particularly lowered guidance this quarter?

I will answer all of these questions in one simple and quick answer: Money. Why would they lower guidance to make more money? Well, in my opinion, the people who work for Apple have no incentive to drive the price of the stock higher in the short term. In fact, their incentive is to drive the stock lower in the short term. Why? The people who work at the company are being paid in options. If you schedule your strike price for options to be set on a particular day, you are incentivized to have the stock as low as possible on that particular day. The only day that one wants the price to be high is when one sells. Are any Apple insiders selling? Very few.

In other words, and this is the main point, I that that what they are doing is driving the stock lower, essentially buying via their options plans, and then waiting for the stock to go higher to its “correct” price. Brilliant. How could you not love such a creative company?

Is it illegal or even discussed that any company would be to be conservative in forecasting? Has anybody ever been fined or investigated by the SEC to drive the price down so their options are set at a lower price? Not that I have ever heard of. Have people ever been convicted and jailed for overly hyping a stock? Not sure? Let me ask my friend in Cell 12, Mr. Skilling or the dearly departed Kenny Lay.

Is Apple in their saintliness above such trickery and shenanigans? Are they so rich they have no reason to resort to such games? Does a quick search for the term backdating of options reveal the answer? Yes.

Why all of a sudden the dramatic lowered guidance this quarter? Well, for years they have been guiding lower so no one listens unless they guide dramatically lower. If they only guided marginally lower, people would take that as a positive.

Why so many questions in this article? I dunno.

Disclosure: Author has a long position in AAPL

Comments

[Hugo van de...:]

'dramatic lowered guidance' ??? No, it is not very different from last year, and it's even better:

If you compare the Q1 results and Q2 predictions from 2007 with this year, you will see that Apple hasn't guided lower at all!

Apple made 7.1 billion in sales for Q1 in 2007 and predicted between 4.8 and 4.9 billion for Q2 2007, that's 68% of Q1. Profits were 1.14 per share in Q1 2007 and Apple predicted between 0.54 and 0.56 for Q2, that's 48% of Q1.

Now, for 2008, Apple did 9.6 billion in sales, and predicts 6.8 billion for Q2, that's 72% of Q1. Profits were 1.76 per share in Q1, predictions are 0.94 in Q2, that's 53% of Q1.

So Apple predicts an additional rise in sales of 4 points, and an accelerated rise in profits of 5 points, compared to last year. I thinnk that's good!

2008 Jan 23 07:44 AM

[Tom B:]

Giving conservative guidance is not illegal or unethical. Moreover, they might be intended to spend some of their cash.

2008 Jan 23 08:32 AM

[brewer:]

Someone is driving the stock lower, but it's not the workers in Cupertino.

2008 Jan 23 02:45 PM

[KenC:]

"dramatic lowered guidance'?!? That's nonsensical. Lowered from what? They guided conservatively, as they always do.

The guidance was 29.3% higher in revs from the previous year. Did I say HIGHER?

If Apple guides, consistently, the market should internalize that knowledge and adjust accordingly. There should be no opportunity for an option strike manipulation. The point is that the guidance is consistently conservative. If it was arbitrary high one quarter and low another, then you could make an argument for manipulation, but Apple is consistently conservative. Even last quarter was conservative from Apple's position. Who cares what the analysts have cooked up. Apple beat its guidance again. There's no conspiracy here.

2008 Jan 23 02:56 PM

[Jon T:]

Actually, if you look at the guidance for Q1 Apple gave guidance ABOVE the Streets back in October.

Your headline is wrong.

2008 Jan 23 05:56 PM