Friday, October 15, 2010

Apple (NASDAQ:AAPL): Expect In-Line Quarter Despite Headwind Of iPhone & iPad Supply Shortages - Piper

Apple ALERT! - Piper's Munster is not so high on Apple's qtr.

We expect September quarter results in line with the Street; but note results would have been better if not for iPhone and iPad supply shortages world wide that we have monitored throughout the quarter. We believe the printed numbers for iPhone and iPad are less relevant than usual given the lack of supply and we expect the company to address these supply shortages on the earnings conference call.

Bottom line: we believe over the next three months, investors will become increasingly more optimistic that the Street revenue growth in FY11 of 26% y/y is conservative given the size of Apple's addressable markets combined with the company's relatively small market share. Assuming Apple guides December quarter consistent with past guides implies $22.76b and $4.41 EPS (Street $22.1b and $5.01 EPS).

- Don't expect typical EPS upside due to iPad. The Street is looking for EPS of $4.05. Assuming a typical beat over the past 17 quarters, Apple would report $4.80. To get to $4.80 on $18.8b in revenue would require gross margin of 43%, well ahead of 39.1% in June, the Street's 38% September estimate and guidance of 35%. The bottom line is the mix shift and revenue upside driven by the lower margin iPad (about 30% gross margin) significantly tempers EPS upside potential. Over time, we expect iPad margins will trend higher, and give Apple the opportunity to post upside consistent with historical trends.

- iPhone: (37% of sales) Supply Shortages Persist, Limit Upside. Ultimately we remain comfortable with our 11.0m iPhone estimate which is in-line with consensus, but recognize that supply constraints may limit upside.

- iPad: (16% of sales) Strong International Demand Could Be Muted By Production Limitations. The Street is looking for 4.7m iPads in September, compared to our 4.5m estimate. We are slightly below the Street because of uncertainty in the supply levels internationally. See details on page 2.

- Mac: (25% of sales) NPD Tracking In-Line To Slightly Ahead Of Street Consensus For Sept.

- iPod: (9% of sales) NPD Data Suggests Units Of 10.0m-10.5m (Street ~10m) For Sept. Qtr.

Notablecalls: This is going to hurt Apple. Hudson chose a bad day to hype themselves (see below).

1 comment:

Tommo_UK said...

Munster's been wrong on AAPL for awhile now.. he's gone from really getting it to seeming like a startled rabbit. He's not accounting for overseas sales contributing to higher ASPs thanks to the weakness of the US$, nor higher overseas prices irrespective of added sales tax. This will also help GMs.
Nor is he seemingly accounting for Apple's massively increased channel outlets for iPad and iPhones, which should enable them to guide strongly for Q1, in contrast to Munster's predictions.