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Apple (NASDAQ:AAPL) is scheduled to report its June quarter results after the market closes on Tuesday, July 24. Overall it should be another stellar quarter and I am estimating revenue around $40 billion (up 40% year over year) and EPS of $11.75 (up 51% year over year).

Not surprisingly the biggest risks to the company are competition and how it will fare two or more years down the road due to Steve Jobs and a growing number of executives leaving the company (the latest one being the head of hardware engineering). The greatest risks to the stock are the eventual slowdown in what has been explosive revenue and earnings growth, gross and operating margins decreasing, the sheer size of a company already worth almost $600 billion (where will the new buyers of the stock come from?) and lackluster new products.

I am concerned that while an Apple TV could be a very interesting and user friendly product that due to its price point and that TVs are replaced at a slower rate than cell phones or PCs/Macs that it won't move the financial needle very much vs. what could be outsized expectations in the investment community. The wildcard risk would be a large acquisition which has not been in Apple's DNA.

All that being said I believe that the stock could get to $785 in the next 12 to 18 months. This is calculated by either

  • A 15x P/E multiple on calendar 2012 EPS of $52.50
  • Using a 13x PE multiple on the $52.50 in EPS and add $100 (of the $150 in cash per share at the end of the year)

June quarter Revenue and EPS projections

I estimate that Apple can generate $40 billion in revenue in the June quarter which would be a 40% year over year increase and up 2% from the March quarter. Note that for the previous two years the June quarter's sequential revenue increase was 16% in both 2010 and 2011 but those two years were helped with iPhone launches during the quarter or with Verizon having a full quarter of availability. The Street is projecting revenue of about $37.5 billion and guidance was $34 billion.

My EPS projection is $11.75 for the quarter (up 51% year over year) vs. the Street at $10.35 and guidance of $8.68. My higher EPS estimate is in-line with previous outperformances vs. company guidance in other quarters.

iPhone projection

Apple continues to gain smartphone market share in the US as measured by comScore. It estimates that Apple's US market share (on a three month rolling average) has steadily increased from 28.1% in October last year to 31.9% in May.

7 mth
Oct. '11Nov. '11Dec. '11Jan. '12Feb. '12Mar. '12Apr. '12May '12Oct-May
Google46.3%46.9%47.3%48.6%50.1%51.0%50.8%50.9%4.6%
Apple28.1%28.7%29.6%29.5%30.2%30.7%31.4%31.9%3.8%
RIMM17.2%16.6%16.0%15.2%13.4%12.3%11.6%11.4%(5.8)%
Microsoft5.4%5.2%4.7%4.4%3.9%3.9%4.0%4.0%(1.4)%
Symbian1.6%1.5%1.4%1.5%1.5%1.4%1.3%1.1%(0.5)%
Other1.4%1.1%1.0%0.8%0.9%0.7%0.9%0.7%(0.7)%
Total100.0%100.0%100.0%100.0%100.0%100.0%100.0%100.0%0.0%

I estimate that Apple sold 31.5 million iPhones in the June quarter for just over $20 billion in revenue (an increase of 55% year over year and 50% of Apple's total revenue). This is slightly higher than my 31 million estimate from a month ago and is based on the increased market share data.

It appears that the sell-side analysts are projecting 28 to 30 million iPhones and that they are recently a bit biased to the low-end of the range if not below 28 million.

The 31.5 million iPhones would be down 10% from last quarter's 35.1 million iPhones. US sales should show a sequential decline (9 million down to 6 million in my model) since this is the third quarter that the iPhone has been available in the US.

To reach 31.5 million in total units International sales would have to be 25.5 million which would be down slightly from 26.1 million in the March quarter. This does not seem like a stretch since this is the first full quarter that it has been available in China and continues to be a leading smartphone worldwide. (See the table below for the US and International analysis).

Million units

Mar. '11

June '11

Sept '11

Dec '11

Mar. '12

June '12

US

5.8

5.9

4.7

13.6

9.0

6.0

'% US

31%

29%

27%

37%

26%

19%

Y/Y %

55%

2%

'Q/Q %

2%

(20)%

189%

(34)%

(33)%

International

12.8

14.4

12.4

23.4

26.1

25.5

% Int'l

69%

71%

73%

63%

74%

81%

Y/Y %

104%

77%

'Q/Q %

13%

(14)%

89%

11%

(2)%

Total

18.6

20.3

17.1

37.0

35.1

31.5

Y/Y %

89%

55%

'Q/Q %

9%

(16)%

117%

(5)%

(10)%

Note that Samsung (OTC:SSNLF) has pre-announced its June quarter results with revenue increasing about 4% from the March quarter and its operating profit increasing about 15% sequentially. While not exact (since Samsung could be gaining share from other Android device companies and has other lines of business) since smartphones make up a significant amount of Samsung's revenue and operating profit, this is a positive indication for Apple's results.

The wildcard is how many people are waiting for an iPhone 5. This will have impacted some sales in the June quarter and could significantly impact September quarter sales. From sources I have in the industry I believe that Apple will announce and release an iPhone 5 in either September or October. It needs to be refreshed with a larger screen with 4G capability. In the long-run it won't make a huge difference which month it will be released but there could be short-term swings in the stock if it is in late September/October vs. in early to mid-September.

iPad projection

I estimate that Apple sold 18 million iPads (an increase of 95% year over year) during the quarter generating $10 billion in revenue (25% of total revenue for the quarter). This compares to the bulk of sell-side analysts being in a range of 14-16 million.

This was the first full quarter for the iPad being available but was in limited supply during the quarter. It was not shipping in all countries until the middle of the quarter (and not available in China at all due to a lawsuit that was recently settled) and had leadtimes that were up to two weeks in April and one week in May. It was not fully in stock until June.

From sources I have talked with I believe an iPad "mini" or one with a smaller screen than the current one (between 7 to 8 inches) will be launched in the September/October timeframe. While its price point and margins will be lower than the current iPad I believe it is better for Apple to have it in its product line-up vs. having competitors have 100% of the sales of this size device. Yes, it will cannibalize sales of iPads but having a range of iPads priced from $299 (probable price point for the mini) and up (a similar strategy that Apple has deployed for iPods and iPhones) makes sense.

While the iPad is largely thought of as a consumer device it is being widely adopted in corporate environments. I saw iPads being used in a Safeway store recently and overall believe that it is the tablet of choice with companies.

Mac projection

I estimate that Apple sold 4 million Macs in the quarter generating $5 billion in revenue (12% of total revenue and flat year over year). Mac sales were lower than typical in the March quarter while buyers were waiting for a refresh which was announced on June 11 with new models including the MacBook Pro with Retina display. There is probably a bit more variability than usual with projecting Mac sales since the Retina display models still have 3 to 4 week shipment timeframes. However, since Macs only generate 12% of total company revenue being off by a few hundred thousand units doesn't have a large impact to the financial results. It is interesting to note that just three years ago Macs contributed 34% of total company revenue and four years ago it was 48%.

Guidance

As with any company guidance is key to the short-term performance of the shares. Apple could be especially cautious given the potential that an iPhone 5 may not ship until October combined with the usual speculation surrounding it ramping over the next few months negatively impacting 4S sales (similar if not greater than what occurred last year). A bit of an offset should be the iPad being available in China but that alone would not be enough to offset delayed iPhone purchases. Also, since last year's September quarter was negatively impacted by consumers delaying iPhone purchases it does make for an easier comparison.

I am expecting the September quarter revenue guidance to be about $36 billion or down 10% sequentially from my projected $40 billion in June quarter revenue. For EPS I am expecting $9.00, a decrease from my $11.75 June quarter EPS projection which is similar to last years guidance vs. actual relationship.

Source: Apple June Quarter Projections