Apple Is Undergoing Massive Changes And Having A Very Strange Quarter
After demolishing analyst expectations quarter after quarter, Apple has now whiffed on three of its last five earnings reports.
(Quick recap of the earnings: Revenue and EPS miss, monster earnings beat, another monster beat, revenue and EPS miss, EPS miss.)
It can't afford to whiff again in the most important quarter of the year. The stock, which had been a rocket ship, is out of fuel. It's down 25% since September thanks to a bunch of different factors. The last thing it it needs is to miss on earnings.
The funny thing about this quarter is that it's going to be really hard for analysts to predict. Apple is throwing a bunch of curve balls thanks to big changes in its line of products during the December quarter. And, fair or not, Apple's stock reacts to how its earnings match up with analyst expectations.
Horace Dediu details some of the big hurdles for anyone trying to predict this quarter:
- Apple's low guidance might not be "sandbagging" anymore. Apple used to clobber its comically low guidance. The last two quarters it beat by 7 percent and 13 percent. If you take the midpoint of a 10% beat, then Apple's EPS will be $13, which is down year over year, and below analyst expectations.
- Year-over-year comparisons are difficult. Apple's holiday quarter last year was 14 weeks. This year it's 13 weeks. Last year's holiday had the newest iPhone, the iPhone 4S all quarter. This year the iPhone 5 was already on the market for a week before the quarter started.
- Apple launched a lot of new products in the quarter. Apple released two new iPads, new iMacs, new iPods, and a new MacBook Pro during the quarter. Plus, the iPhone 5 was still new. Typically, new products means big new sales. But supplies of iMacs, iPhones, and iPad Minis were tight around the world.
- The iPhone was launched in 100 countries. This is the fastest roll out of the iPhone ever. This makes it tough to model against historical trends. It's even tougher because it was a staggered roll out, so it's hard to know how many iPhones were sold where.
- Margins are tough to figure out. When you launch a bunch of products all at once, margins tend to be depressed. And the iPad Mini supposedly has relatively paltry margins.
- There was a gigantic increase in CapEx. Typically, says Dediu, this means Apple has a giant increase in production. It doesn't appear as though there was a giant increase in production to match the increase in CapEx.