Apple’s quarter is expected to be very strong, but, unfortunately, expectations have risen to reflect this. After modelling the quarter in detail, we think there is a chance Apple’s revenue or revenue guidance will miss the whisper numbers–not because of Apple’s performance, but because expectations have gotten out of hand.
(As evidence of the state of current optimism, look no further than the title of Fortune‘s Apple preview: How Big the Bounce?)
Specifically, the company guided to $9.2 billion in revenue and $1.42 of EPS. Consensus now sits at $9.46 billion and $1.60 and the whisper numbers are $9.7 billion and $1.80+. Although the company’s guidance was almost certainly conservative, it’s worth reviewing the unit and revenue growth required to surpass even the current consensus, let alone the whispers. Please see our SAI Spreadsheet for details.
Macs remain Apple’s most important business (50% of revenue). Mac sales growth–desktops and laptops–has remained in the 35%-45% range for the past five quarters. This quarter, Wall Street’s printed consensus calls for Mac sales to accelerate to nearly 55% revenue growth, driven primarily by laptop sales. Given strong reported channel checks throughout the quarter, as well as increasing momentum for Macs (See “Macs Cleared for Takeoff”), this consensus is achievable. But it certainly doesn’t feel conservative. And the whisper numbers are far higher.
iPods are expected to accelerate modestly to about 25 million units, up 20% year over year. This would be the first acceleration in iPod unit growth in the past five quarters (last quarter, sales growth decelerated to 17%). Is this possible? Yes. Is it conservative? Again, no.
iPhone sales should be around 2.3 million based on Apple’s Macworld announcement of 4 million units sold. This could contribute about $400 million of revenue.
Bottom line, based on the exceptional growth already baked into the whisper numbers, we believe there is greater likelihood that Apple will disappoint than surprise on the upside.
Here’s the official Wall Street consensus for the critical metrics:
- Revenue: $9.46 billion (whisper: $9.75)
- EPS: $1.60 (whisper: $1.80+)
- iPhones shipped: 2.3 million
- iPods shipped: 24.7 million
- Macs shipped: 2.4 million
Apple (AAPL) reports Tuesday night after the close. The conference call starts at 5pm EST.
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