Over the past two quarters Apple (NASDAQ:AAPL) handily beat guidance and analysts' expectations. Observers generally agree Apple presents conservative guidance while accepting that the company has the best insight into future sales. During their Q2 earnings call, the company guided revenue at $34 billion for the upcoming June quarter (Q3 2012). This compares to Q2 revenue of $39.2 billion. While we do not believe a $5 billion dollar decline is forthcoming, CFO Peter Oppenheimer gave compelling reasons to believe that the company will face a sequential decline in revenue this quarter (unlike the March versus June quarter comparison from last year). This decline would put revenue in the $37.5 billion range, which is inline with expectations.
|Revenue Estimate June 2012|
|Analysts' Average||$37.38 Billion|
|Apple Guidance||$34.00 Billion|
Source: Yahoo Finance
iPhone Supply and 4S Rollout
The first reason Oppenheimer gives in support of a sequential decline in revenue relates to differences in the supply of iPhones. Last year supply to new countries was still being added during the April to June quarter. This year the iPhone 4S rollout in China and 20 other countries occurred in January, completing the rollout for all countries. Basically, demand was filled during the March quarter this year rather than the June quarter like last year.
iPad Supply and Price Decrease
Relatively more supply was on hand for the launch of the new iPad during the March quarter of this year when compared to the launch of the iPad 2 last year. Because of the greater supply, 3 million units of the new iPad sold in the first few days. Revenue that was previously captured in the June quarter again moved to the March quarter as with the iPhone above.
Apple also lowered the price of the older iPad 2 to $399 in March. The company believes in the short run this will lower revenue. However, both Oppenheimer and CEO Timothy Cook indicated they were still learning about the elasticity of the demand of the iPad 2. They highlighted the fact that the lower price unlocks educational demand and led to a marked change in demand in several countries.
The recent strength in the dollar will weigh on revenues in the current quarter. The strong dollar dampens demand in foreign countries for US exports by making the products more costly in the local currency. Other large US based multinationals such as Procter and Gamble (NYSE:PG) and PepsiCo (NYSE:PEP) have recently warned that the strong dollar will be a headwind in the current and coming quarters. For sequential comparisons versus last year, it is interesting to note we saw a weakening of the dollar for the same period.
High launch supply and fast country rollouts of the iPhone 4S and the new iPad moved revenue from the current quarter to the previous quarter when one compares to last year. The lower price point on the iPad 2 and the strong dollar should also decrease revenues. After two quarters of significant beats of analysts' expectations, investors should show caution in increasing their position prior to the upcoming earnings call.
Disclosure: I am long AAPL.