3QF2012 Results
Apple’s shares gapped down about 5%
on Wednesday, after its third quarter conference call on Tuesday afternoon. To
broad stroke the results, earnings missed analysts estimates by $1.06 &
came in at $9.32 per share. This was the second earnings miss in the past 39
quarters. Management suggested that weaker sales were a result of customers
waiting for the long-awaited iPhone 5 release, which is expected to be on sale
this fall.
The
company sold 26 million iPhones in its third fiscal quarter, a 29% increase
y/y, but down from 35 million during the second quarter. Weakness in gross
margins can be explained by a mix of lower priced iPhones ahead of the iPhone
5, greater contribution of the iPad to sales v. iPhones, & foreign
exchange. CFO Peter Oppenheimer: “Our weekly iPhone sales continue to be
impacted by rumors and speculation regarding new products.”
Deskop
sales decreased 19%, notebook sales increased 3%, iPod sales decreased 20%,
iPhone sales increased 22%, & iPad sales increased 52%. The iPhone 5 is
rumored to have LTE connectivity with new physical features (e.g. thinner, new casing).
Management estimates fourth quarter revenue of roughly $34 billion, gross
margins of 38.5%, & EPS of $7.65.
All
in all, an EPS/sales miss was bound to happen for a company that consistently
beat The Street’s expectations. Although Apple may have missed consensus growth
estimates for this quarter, it is still has a fantastic story & room to
run. A strong product line, among other catalysts, should drive the stock price
in the coming months if not before the holiday season.
Catalysts
-New iPad,
cheaper iPad 2, iPad Mini
-iPhone 5 with
LTE capability drives strong upgrade cycle
-Mix shift from
iPad to iPhone drives margins higher
-Expanding
distribution in emerging markets (China, Brazil, ect.)
-iTV
Risks
The major risk to Apple’s
performance & stock price is the success of new tablets, especially from
Microsoft & Google. In my opinion, the Surface (Microsoft) poses the most
threat. Although it is unlikely that a software company can successfully
produce a physical product (like a tablet) without complications, strong
execution could pose a threat to Apple’s corporate market. Many of these
companies that are focused on productivity still run on Office to utilize
programs like Excel & Word (Apple’s “Pages & Numbers” haven’t posed
much of a threat to this market). Whether from the companies themselves or
their employees, the Surface could be popular among those that want to get some
work done in transit or at home, with the Surface’s keyboard feature. In
addition, Microsoft 8 will offer a variety of features that should strengthen
its hold on the corporate market.
Dan Hurley’s Comments (Original Analyst)
-Bad headlines
did not help the stock price. Customers waiting for iPhone 5
-“A material
chunk of the blowout iPhone/iPad sales from the March quarter will pull forward
from this quarter rather than sales to end users”
- “The beat in
iPads is extremely positive given the fact that new iPad sales in mainland
China, which makes up ~70% of Asian sales, were not included. Sales of the iPad
2 at its newly lowered price point were driven by success in the education
unit. Both of these bode extremely well for iPad sales in September.”
-Lowered margin
guidance for the next quarter could meant Apple is introducing a smaller iPad
(mini) at a competitive price point (to compete with tablets like the Kindle
Fire).
Other
Relative
Performance (compared to the S&P 500) 3 Months Ahead of an iPhone
Announcement
Original iPhone 22%
iPhone 3G 40%
iPhone 3GS 32%
iPhone 4 20%
iPhone 4S 22%
Apple will buy
AuthenTec Inc for $355 million, which could provide a security feature on an
advanced version of the iPhone (fingerprint technology).
David Einhorn: “Not only do we believe the skeptics are misguided, we believe the shares remain cheap.”
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