So Apple (NASDAQ:AAPL) reports in a few hours, and I just wanted to put my expectations down in writing. Hopefully I won't be embarrassed too much when the real numbers hit.
EPS of $15.50 (+/- $1) on roughly $59 billion of revenue. Gross margins should hold up much better than the Street expects at 40% (+/- 1%). Unsurprisingly, the biggest areas of strength will be iPhone (53 million units) and iPad (24 million units). I think the iPhone ASP could drop off pretty significantly year over year to $620-$630 vs. $660. (I'm approximating by dividing iPhone and related revenue by iPhone units.)
As for Q2 guidance:
I'm expecting Apple to guide to around $10.50 EPS on $44 billion of revenue for next quarter, which is below consensus. I'm expecting conservative guidance as usual from Apple; revenue will probably be around 10% higher and EPS 20% higher than guidance when Apple reports in April. As for gross margin guidance, my best guess is 38%-39%.
Better yields should improve gross margins sequentially, but I think there's limited room for improvement given my fairly bullish stance on Q1 gross margin. Additionally, we will see proportionally higher shipments of the new iMac (still severely undersupplied) and the iPad mini next quarter, and these both have lower margins than the corporate average.
It will be interesting to see what numbers Apple puts up, and what Wall Street does with them. I'm predicting that Apple will guide to Q2 gross margins below Q1 gross margin, which could potentially throw a bone to Apple bears. However, on balance I think that a blowout Q1 should offset most of the concerns about Q2 and beyond by reinforcing the belief that management estimates are extremely conservative. We've seen Apple crush estimates many times before, but never with such a pall of negativity hanging over the stock. We could be in for a very volatile next 24 hours.
Disclosure: I am long AAPL.