Apple's Q2: Analyzing the analysts

I seldom write, but I feel I must.

It is clear to me that no one has a great crystal ball, not even Apple. And that is what this is, a guessing game, until the numbers are out.

Given that FACT, why on Earth would Apple guess high only to perhaps disappoint. Do you really think they have a better handle on the economy, and all of the variables that go into a buy decision?

As for the analysts and prognosticators, there ability to guess the actual numbers is no better than you or I. Evidenced in the article here, and this is what we see time and time again, and of course not only for Apple.

Bottom line is if you like the strategic direction of a company, and believe in its' management, and VISION, that should be your rationale for buying into the stock. From that you pay your money and you take your chances on where the company's revenue will go.

I for one have been long on Apple for quite some time, and will continue that position.

Apple gets it, and their ability to execute on their vision and ultimately their products is second to none.

Here's something to consider. I doubt any of the analysts factored in Apple's deferral of current iPhone revenue after their March 17th release of the details on iPhone OS 3.0. That's two weeks of iPhone sales, missing in this quarter's numbers.

A quick back of the envelope calculation, would say this has a $50M GAAP revenue hit in this last quarter, and a $250M GAAP hit next quarter. Obviously, no non-GAAP affects. Since noone was factoring that in, then true Apple guidance for next quarter, ie if you want to compare apples to apples, means you need to add $250M to what Apple stated to get a true comparison to analysts' expectations. So, something like $7.95B to $8.15B for next quarter, which is right in the ballpark.

And, when you add that $50M GAAP hit in this past quarter, well, it should have taken their GAAP reported figure of $8.16B to just over $8.21B. That would make the closest analyst to Apple's actual result, a tie between Zaky at $8.32B and Abramsky at $8.10B, each off by $110M.

Of course, I posted a prediction of $8.3B.

ex ped: Very clever!

Turley, Deagol – Congratulations! EPS number is all-inclusive of product numbers AND revenue AND margins, so in my book it's the most important metric, and you win.

I will be looking forward to current quarter estimates.

Personally, I think using the "how many closest to actual" is not very accurate. It's the total picture that needs to be considered. Thus, using a standard deviation to measure each category and then using the average deviation from reality, as the true measure of which analysts or bloggers came closest.

It's utter nonsense to get the number of units right and then blow the revenue number. And, as Deagol points out, the eps number or revenue number are far more important than individual unit numbers, as unit numbers are just apart of calculating the revenue figure, so you could weight the value of each prediction to get a better idea of who did well and who didn't.

What nobody seems to be picking up on is starting in JUNE the first of the iphones are going to start coming off contract. I look to see "no strings attached" iphones on eBay for about $225–would you rather have the latest bells and whistles AND a ring in your nose–a rather expensive ring–or would you rather have about the same thing–no strings?–some will go either way–but the whoosh you hear will be people either selling their phones to people who wouldn't have ATT on a bet–or keeping them, but switching carriers. I have a G3 in my pocket–but it certainly isn't serviced by ATT

And then there's Scott Moritz from "The Street"

Quote… "the chances of a big positive surprise are as slim as the rumored new iPhone."

http://www.thestreet.com:80/story/10489391/1/apples-quarter-neither-golden-nor-delicious.html

BTW, I see that Scott Moritz of TheStreet has finally come out of the closet as an Apple hater. In his vitriol-dripping article called "Apple: Don't Mind the Maggots" (would that be you, Mr. Moritz?), he blatantly accuses Apple of playing "a confidence game".

Pretty strong words. But can he back them up? Not unless OPINION has risen to the same level as FACT.

He accuses Apple of "glossing over the blemishes and putting a fine polish on its aura", saying "If you didn't know better, you would think Mac marketshare was still growing…But that's not true." (Hmm, did you say that, Apple? Not to my recollection.)

It is his contention that "an entirely distasteful and unworthy rival: netbooks" are "taking a bite out of Apple", going on to say that, while "yesterday's jnky netbooks have already made a dent in Apple's business", the "bigger threat is that tomorrow's improved netbooks…will offer sleek designs and a performance comparable to Macs at half the price".

All of which is highly arguable. It is far more likely that the slowdown in Apple desktop computer sales is simply a function of the recent refreshing of their line. Obviously, people are going to wait to purchase a new computer when they know a new model is just around the corner.

But a simple formula like that would never occur to someone with such an obvious axe to grind as "Maggot" Moritz!

I give all the Street Crowd F's EPS drives stock prices, and they were way off. Again. times infinity,

How did they blow that gross margin so badly? The consensus was ~33%, when Q1 GM was 34.7%.. And AAPL increased GM guidance? from 30 to 32.5? I think most Street GM estimates weren't above 34%

My forecasted GM was 36.5%. Probably looked crazy sticking out that far, But turned out I was off by 10 bps, resulting in my EPS estimate of 1.32 to be light 1 penny.

Most all revenue estimates were clustered around the actual, but so were the GMs.

That was a gimme, I had pounding the table on that-

http://www.cnbc.com/id/29880637

http://financial-alchemist.blogspot.com/2008/10/apples-fy09-margin-expectations-too-low.html

1) How does it fall when iPod revenue as PCT of Total Revenue is way down Q/Q, – where iPod carries lower GM relative to iPhone and Software, and less iPod q/q means a lower weighting on low GM and higher weight on high GM segment.

2) The GM on iPhone revenue recognized has increased. AND the amount of revenue increased AND as I said above, the proportion of iPhone revenue total Increased.

Got a full Q of recognition of Dec iPhone unit sales that carried a higher GM (that Sep sales,)

http://financial-alchemist.blogspot.com/2008/11/calculating-gross-margin-for-apples.html

And last, unit sales are not meaningful outside the context of ASP, with respect to earnings. If one nails the units, but blows ASP, or vice versa, the forecasted revenue / EPS will be adversely affected

If both ASP & unit forecast are too high (low) it magnifies the EPS miss. The impact on EPS accuracy can be assuaged if an overly aggressive ASP (unit) is matched with a conservative Unit (ASP) assumption.

ex ped: Kudos all around, Turley. Next time I'll include gross margin estimates.

Regarding those "low" desktop Mac numbers, nobody seems to be mentioning that Apple desktop computers were updated a few weeks back. This is important because prior to that, people were obviously going to be holding back on their purchases. Thus, a true measurement of the state of Apple desktop computers (versus "pocket computers" like the iPhone and the iPod Touch) will have to wait until the next quarter.

Love the spreadsheet, however, the conclusion is unjustified.

You give Abramsky the win, are you kidding me, he only projected 4 of the 7 categories!! Had he put more data our there I would wager he would have missed something (it's not like he completely nailed his other guesses)?

I think Turley Muller won the quarter. I would certainly rather my analyst gets EPS right first and foremost with Revenue being second. Abramsky was WAY off on EPS…who cares if you get units right/wrong if you miss the EPS number (basis for PE, valuation, etc.) by a country mile?!?!

Also, I would rate a beat different than a miss (i.e., Turley's low estimate for iPods is not as bad as over estimating).

No love for the "unaffiliated" analysts even though EACH ONE came closer on EPS than the Pro's…

ex ped: Abramsky may well have projected those other categories, but he doesn't share his numbers with me; I get them second hand. But I agree that Muller's EPS estimate was most impressive.

Nice summary Phil. Finally, Apple beats the street and the stock actually goes UP. I hope the day traders have to think a little harder on this one now.

As you pointed out, it's especially impressive during these difficult times when all the other manufacturers are slashing prices. And I'd like to point out that margins actually went up as well. Wall Street can only ignore so much.

Apple is always super conservative! They lowered guideance but who cares? If they ever hit the numbers they actually put out the shares would fall.

Seems a bit unfair giving Abramsky the Kudos when he didn't even attempt iPod numbers. Shouldn't that be a red? and at least Huberty attempted eps non-Gaap numbers although she was wrong.

ex ped: Abramsky may have published iPod numbers, but he didn't send them to me.

Thanks for the plug Philip. If I may, my blog is at aaplmodel.blogspot.com

Turley kicked Abramsky's ass, IMO. Hitting the EPS is much more important than all the other categories.

Not to be nitpicky, but why is my 1.47 non GAAP EPS grayed out?

ex ped: My bad. I'll fix the grayed-out box when I get a moment.