Here's Why Apple Missed On Earnings

Tim Cook

Photo: AP

Apple had an earnings miss yesterday, marking the third quarter out of the last five that it’s come up short of expectations.This is a big change of pace for Apple, which had been smashing expectations for the last few years.

However, it’s not all that bad according to Shaw Wu at Sterne Agee.

Apple beat on revenue with sales of $36 billion versus expectations of $35.8 billion (according to Wu).

And while it missed on EPS with $8.67 versus $8.75 expected, this miss was because of foreign exchange issues.

Shaw Wu at Sterne Agee says, “If not for higher than expected FX hedging costs of 24 cents, EPS would have beat by 16 cents.”

So, there you go. No need to panic, maybe.

Wu also listed the reasons to be bullish and bearish:

What the Bulls Point To

  • iPhone shipments came in at 26.9 million, better than consensus estimates of 25-26 million.
  • Macs shipments of 4.9 million units came in better than expectations at 4.7-4.8 million.
  • If not for higher than expected FX hedging costs of 24 cents, EPS would have beat by 16 cents.
  • Growth was across all regions. Americas (38% of revenue) and Japan (7%) showed more significant growth, up 43% Y/Y and 113% Y/Y, respectively, while Asia-Pacific (21%) was up 15% Y/Y, and growth for Europe (22%) was lighter at 8% Y/Y.
  • We estimate that iPhone ASPs increased Q/Q to $636 vs. $624 last quarter, and Mac ASPs increased Q/Q to $1344 vs. $1227 last quarter.
  • iCloud users increased to more than 190 million (from more than 150 million last quarter).
  • Its cash balance continues to strengthen with net cash now at $121.3 billion, up from $117.2 billion last quarter. Net cash per share is now $127.9 vs. $123.8 last quarter.
  • Inventory decreased 30% Q/Q to $791 million vs. $1.12 billion last quarter.

What the Bears Point To

  • This is the second quarter in a row where AAPL missed EPS.
  • Gross margin came in at 40%, lower than consensus expectations of 41% and ours at 40.5%.
  • iPad shipments of 14 million came in lighter than already lowered expectations of below 16 million vs. previous view of 17-18 million and our estimate of 15.8 million.
  • iPod shipments of 5.3 million units, down from 6.6 million a year ago, and lower than expectations at 6 million.
  • Mac growth of 1% Y/Y, while faster than the market contracting at -8% Y/Y, is the slowest it has been in some time.
  • iPad and iPod ASPs declined slightly Q/Q. We estimate iPad ASPs at $535 vs. $538 last quarter and iPod ASPs at $153 vs. $157 last quarter.
  • DSOs increased to 28 days vs. 20 last quarter.
  • Competition from Android cannot be discounted as it continues to gain adoption.
  • The law of large numbers continues to be a concern.

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