American Technology Research analyst Shaw Wu predicted on Thursday that Apple will show strong results for its fiscal 3rd quarter than ended in June. The expectation is US$7.3B in revenue, $1.10 EPS, 2.5 million Macs, 10.5 million iPods and 705,000 (2G) iPhones.
In a research note to investors, obtained by TMO, Mr. Wu enumerated key points to watch:
- Anticipate Strong Results Driven By Macs and iPods. Based on our supply chain checks, we expect AAPL to beat its guidance ($7.2 billion in revenue and $1.00 in EPS). We are modeling $7.3 billion and $1.10 in EPS (consensus at $7.3 billion and $1.07 in EPS). We are looking for 2.5 million Macs, 10.5 million iPods, and 705,000 iPhones.
- Gross Margin Will Be Key Metric To Watch: We believe the gross margin will be the key metric to watch and biggest swing factor on EPS dependent on AAPLis ability to capitalize on component pricing (we are modeling 33.5% vs. guidance of 33%). Inputs suggest favorable trends; however, last quarter favorable inputs did not translate into gross margin upside. Investors chose to ignore this and gave AAPL a "free pass." Given the macro environment, this quarter investors may not be so forgiving.
- Conservative Guidance: We believe AAPL will likely continue its tradition of conservative guidance (7 out of the last 8 quarters) to help set more realistic expectations. We are somewhat concerned that our supply chain checks indicate a slight cut-back in Mac production, but we remain comfortable with our 2.8 million unit forecast and believe the September quarter will be characterized by strong iPhone shipments. We are modeling $8.4 billion in revenue and $1.30 in EPS vs. consensus of $8.3 billion and $1.24.
- Conclusion: While AAPL shares are volatile around earnings, we continue to believe it is one of the better fundamental stories. We see upside to $220 based on 32.5x our CY09 EPS of $6.81, or 30x net of cash and interest income.
Mr. Wu also estimated a total revenue for FY08 at US$32.9B and $5.33 EPS. The iPhone estimate for Q308 of 705,000 takes into account the fact that Apple was out of stock of the iPhone 2G in mid May and the iPhone 3G did not ship until July 11.
There was concern by Mr. Wu that strong shipments of the iPhone could cannibalize iPod sales, and heis modeling a total of 55.9 million iPods in CY08. He has seen a strong movement to the iPod touch as customers are tending away from simple MP3 players.
For the iPhone he sees a total of 12.5 million iPhones sold in CY08, up from his previous estimates, and forecasts 22 million in CY09. Thatis substantially less than the estimate of Piper Jaffrayis gene Munster who recently reiterated his belief that Apple would sell 45 million iPhones in CY09.
The analyst sees Mac sales a solid driven by three factors: back-to-school, mobility users and switchers. However, Apple may not quite reach the 3 million number for Mac sales in the September quarter, and as mentioned above, the forecast is for 2.8 million.
Finally, Mr. Wu set his 6-12 month price target for AAPL at US$220.
In Thursday trading, AAPL is generally holding steady in the US$173 range.