Merrill Lynch Reduces Apple Q3 Estimates

| Apple Stock Watch

Appleis second fiscal quarter earnings report fell short of Merrill Lynch analyst Richard Farmeris expectations, but the companyis gross margins came in higher than predicted. Despite Appleis second highest earnings report ever, there are concerns that it canit sustain its higher margins.

Apple reported that it moved 8.5 million iPods during the quarter, which was below the Merrill Lynch estimate of 8.8 million. Mac sales came in below analyst expectations, too, at 1.11 million units instead of 1.13 million. Despite the lower than expected units sold, Apple still reported a revenue of US$4.36 billion, which was in line with Mr. Farmeris estimate of $4.34 billion.

Estimated Earnings Per Share hit $0.47, above the general consensus of $0.43, based in part on lower Flash memory and component LCD display prices. If new iPod features are added without raising prices, and if component costs start to rise, Apple likely wonit be able to maintain the higher earnings it experienced in the March quarter.

Looking forward, Mr. Reitzes is lowering his iPod estimates for the June quarter from 10.7 million units to 9.2 million. The total number of iPods for fiscal 2006 has been lowered from 47.1 million units to 43.4 million.

Fiscal revenue projections are down, too. 2006 EPS drops to $2.13 from $2.20, and 2007 have been lowered to $2.84 from $2.94.

Apple stock is currently trading in the pre-market at $69.33, up 3.68 (5.61%).

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