The latest on Apple’s earnings that went so far in corroborating what I’ve been preaching for months to a bunch of crazed, excitable Apple fanatics who simply refused to see facts for what they were:
Apple surpassed quarterly earnings expectations again with the help of strong sales of its iPhone, but iPad sales and margins disappointed [strong demand, but the smart money is waiting to see what the Android tablets are capable of - I don't think they'll be disappointed], and its shares sank.
Weaker-than-projected gross margins [exactly as I anticipated - see How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue] and iPad shipments disappointed investors who had expected more from a company that had smashed Wall Street’s targets in each of the past eight quarters. Apple shares dropped 7 percent in late trading after initially being halted. The stock finished the regular Nasdaq session [AAPL 318.00 3.26 (+1.04%) ] more than 1 percent higher. Sales of Apple’s popular iPhone jumped 91 percent to 14.1 million units in the quarter. The company sold 3.89 million Macs, an increase of 27 percent. Apple sold 9.05 million iPods, marking a decline of 11 percent year over year. The company 4.19 million iPads in the quarter….
“Ipad, a little bit disappointing there. Street was expecting closer to 5 million units,” he said. “The problem is supply, they can’t make enough of them. iPad will shine in the December quarter. I believe it will be the holiday gift of choice.” [The problem is more than supply. Yes, bottle necks affect sales, and there is more than ample demand to drive said bottenecks, but as I stated earlier, the "smart money" is waiting to try out the fleet of Android tablets that are coming. I am a consumer of these products, I can speak from personal experience.]
Gross margins in the fiscal fourth quarter came to 36.9 percent, a tad below Wall Street’s average forecast of 38.2 percent. [Uhhh,, that's a bit more than a "tad", see Apple on the Margin]
“It’s an incredible phenomenon—not only did they beat our heightened expectations but they’ve blown past forecasts, and it’s primarily driven by the iPhone,” said BGC’s Colin Gillis. [and as expected, unbridled Apple optimism without bothering to even glance at the trend that is forming. After the fact, the next statement will be peppered all over the media - An "unexpected" plunge in Apple's margins caused a crash sell off in the NASDAQ today, as nearly all stocks save Google fell"]
From Bloomberg: Apple Forecasts Profit That May Miss Predictions
Oct. 18 (Bloomberg) — Apple Inc. forecast profit for the current quarter that may miss analysts’ predictions amid supply constraints that hampered sales of the iPad computer. Profit will be about $4.80 a share in the current period, which includes the yearend holiday shopping season. Analysts surveyed by Bloomberg had predicted profit of $5.03. Apple fell in extended trading.
Apple sold 4.19 million iPads last quarter, fewer than the 4.5 million predicted by Gene Munster, an analyst at Piper Jaffray Cos. in Minneapolis. Sales may have been impeded by difficulty in getting access to the parts needed to make the device, said Giri Cherukuri, chief investment officer of Oakbrook Investments. “People may be a little disappointed with the weaker iPad sales,” said Cherukuri, whose firm owns Apple shares. “Apple also had conservative guidance for the next quarter. The market is trying to digest that.” Apple, based in Cupertino, California, slumped 5 percent to $302.02 in extended trading. It had climbed $3.26 to $318, a record, at 4 p.m. in Nasdaq Stock Market trading. The shares, up 51 percent this year, surpassed $300 for the first time last week.
Smartphone makers using Google’s Android operating system took share from Apple during the second-quarter [Yep, Competition May Take a Bite Out of Apple], researcher ISuppli Corp. said in a report last week [Exactly as forecast on BoomBust -iSuppli Continues to Validate BoomBustBlog’s Original Thesis: Android as the Viral Game Changer!]. Google’s Android software, used by manufacturers including HTC Corp., Motorola Inc. and Samsung Electronics Co., is the most popular smartphone software in the U.S., according to a study from Gartner Inc. [See Android Increases the Revenues of Those That Adopt It, to the Detriment of Those That Don't?]. Samsung, HTC, Motorola and Dell Inc. are among the companies using the Android operating system in tablet computers to rival the iPad. Hewlett-Packard Co., the largest computer maker, also is developing a tablet computer. Apple Chief Executive Officer Steve Jobs may get a sales boost by expanding the availability of the iPhone in the U.S. Verizon Wireless may begin selling the device in January, two people familiar with the matter said in June.
I actually gave a warning of Apple’s potential for margin compression on CNBC (about 3 minutes into the video) a few hours before they reported. So, take a look at how the market reacted…
Was this an “unexpected” occurrence? Hell no! BoomBustBlog clued you in last month. Actually, it wasn’t a clue – I stated it EXPLICITLY! Reference “How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue“
…In the meantime, sheeple-like investors are being hoodwinked by quarter after quarter of Apple blow out earnings. Don’t get me wrong. I feel and fully acknowledge that Apple is executing on all 8 cylinders of a 6 cylinder engine, but it still has its real world limitations. Apple will start to bump up against these limitation over the next 4 quarters, and the signs of this bump are already apparent. Of course, the signs are being handily masked by the games that Apple management and the sell side analysts of Wall Street play, with the “Sheeple” retail and the lazier component of the institutional investors being put out to take the eventual bullet.
Riddle me this – If Apple can consistently beat the estimates of your favorite analysts quarter after quarter, after quarter – for 11 quarters straight, shouldn’t you fire said analysts for incompetency in lieu of celebrating Apple’s ability to surprise? After all, it is no longer a surprise after the 11th consecutive occurrence, is it? I would be surprised if my readers were surprised by an Apple surprise. Seriously! Apple management consistently lowballs guidance to such an extent that it can easily manage, no – actually create outperformance. This has has a very positive effect on their valuation. Of course, I do not blame Apple management for this, of they are charged with maximizing shareholder return. The analytical community and the (sheeple) investors which they serve is another matter though. Subscribers can download the data that shows the blatant game being played between Apple and the Sell Side here: Apple Earnings Guidance Analysis. Those who need to subscribe can do so here.
Below, I drilled down on the date and used a percentage difference view to illustrate the improvement in P/E stemming from the earnings beats.
In our analysis of Apple, we are using real world assumptions of future performance derived from backing in to the low balling this company is prone to. If you look at its history carefully you can gauge what management is comfortable with, hence what they may be capable of on the margin. Using these more realistic numbers, it is much more likely Apple will deliver a miss in the upcoming quarters in its battle with the Android! The following is the reason why.
Those that are interested in my take on Apple’s potential and actual margin compression issues should subscribe and download Apple iPhone Profit Margin Scenario Analysis Model. For those that thought the BoomBustBlog was just finance and real estate, to date we are 3 for 3 in the technology space, and I have quite a few more companies to go. In the mobile computing cue is still Apple itself, quite a few component companies and potentially even Microsoft.The Research In Motion Forensic Valuation and Analysis is Released to the Public
For those who want a sample of our analysis, I have made the RIM model available for free download now that it has hit our initial price targetsThe Complete, 63 pg Google Forensic Valuation is Also Available for Download to all paying subscribers. More on the Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars!
- There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
- The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift
- An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
- Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet
- This article should drive the point home: An iPhone 4 Recall Will Hurt Apple More By Opening Additional Opportunity for Android Devices Than Increased Expenses
- A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone
- After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play
- RIM Smart Phone Market Share, RIP?
- Android is gaining preference as the long-term choice of application developers
- A Glimpse of the BoomBustBlog Internal Discussion Concerning the Fate of Apple
- Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance
- Apple on the Margin
- RIM Smart Phone Market Share, RIP?
- Motorola, the Company That INVENTED the Cellphone is Trying to Uninvent the iPad With Android
- Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space
- There Goes Those Fancy eBook Aspirations from Apple, Barnes and Noble, and Amazon: 100,000’s of FREE eBooks from the Public Library
- How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue
- Empirical Evidence of Android Eating Apple!
- More of the Android Onslaught: Increasing Handset Revenues and Growth
- Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion
- The BoomBustBlog Multivariate Research in Motion Valuation Model: Ready for Download
- The Complete, 63 pg Google Forensic Valuation is Available for Download
- iSuppli Continues to Validate BoomBustBlog’s Original Thesis: Android as the Viral Game Changer!
- BoomBustBlog Research Hits Another One Out the Park! Google up nearly 10% after hours, true blowout earnings unlike JPM
Disclosure: long google, experimenting with an Apple short