Andy, one question: why do you feel that guiding 7.5% below your revenue estimate would be so out of character for Apple? Suppose they were looking at close to $11.8 to $12 billion, as you and I do. If that were the case, why do you see such a strong case for guidance of $10.6 billion, a 12% uPoD, which would be about twice their historical uPoD average for revenue?

Here’s how I estimate Apple’s guidance:

1. Pare down my revenue estimate by about 5%
2. Pare down my gross margin estimate by about 200 bps
3. Pare down my OpEx estimate by about $40m (Andy, you invented this one so why don’t you try it? )

Notice how current consensus estimates are nowhere in the equation.

The strong emotional response to this guidance issue and the vitriol coming out towards PO (crowing about the subscription accounting for iPhones which was announced all the way back in April 2007, a whole year-and-a-half ago seems quite childish to me) is making me think of it as a contrarian indicator, i.e. when everyone expects crappy guidance and a tanking stock and sell before the event, that’s probably when the stock price won’t actually fall on crappy guidance (no supply of stock from retail). This is precisely happening on one of the few quarters when Apple might just guide closer to consensus, or even inline (see last year’s Q4) and thus the combination might create a massive short squeeze/panic buying from confused long-time longs who had sold. But don’t pay attention to me, I have no clue about short term price movements (see my $263 target).

[quote author=“deagol”]Andy, one question: why do you feel that guiding 7.5% below your revenue estimate would be so out of character for Apple? Suppose they were looking at close to $11.8 to $12 billion, as you and I do. If that were the case, why do you see such a strong case for guidance of $10.6 billion, a 12% uPoD, which would be about twice their historical uPoD average for revenue?

Here’s how I estimate Apple’s guidance:

1. Pare down my revenue estimate by about 5%
2. Pare down my gross margin estimate by about 200 bps
3. Pare down my OpEx estimate by about $40m (Andy, you invented this one so why don’t you try it? )

Notice how current consensus estimates are nowhere in the equation.

The strong emotional response to this guidance issue and the vitriol coming out towards PO (crowing about the subscription accounting for iPhones which was announced all the way back in April 2007, a whole year-and-a-half ago seems quite childish to me) is making me think of it as a contrarian indicator, i.e. when everyone expects crappy guidance and a tanking stock and sell before the event, that’s probably when the stock price won’t actually fall on crappy guidance (no supply of stock from retail). This is precisely happening on one of the few quarters when Apple might just guide closer to consensus, or even inline (see last year’s Q4) and thus the combination might create a massive short squeeze/panic buying from confused long-time longs who had sold. But don’t pay attention to me, I have no clue about short term price movements (see my $263 target).

So.  Do you think Apple will guide above $11 billion?

[quote author=“deagol”]Andy, one question: why do you feel that guiding 7.5% below your revenue estimate would be so out of character for Apple? Suppose they were looking at close to $11.8 to $12 billion, as you and I do. If that were the case, why do you see such a strong case for guidance of $10.6 billion, a 12% uPoD, which would be about twice their historical uPoD average for revenue?

Here’s how I estimate Apple’s guidance:

1. Pare down my revenue estimate by about 5%
2. Pare down my gross margin estimate by about 200 bps
3. Pare down my OpEx estimate by about $40m (Andy, you invented this one so why don’t you try it? )

Notice how current consensus estimates are nowhere in the equation.

The strong emotional response to this guidance issue and the vitriol coming out towards PO (crowing about the subscription accounting for iPhones which was announced all the way back in April 2007, a whole year-and-a-half ago seems quite childish to me) is making me think of it as a contrarian indicator, i.e. when everyone expects crappy guidance and a tanking stock and sell before the event, that’s probably when the stock price won’t actually fall on crappy guidance (no supply of stock from retail). This is precisely happening on one of the few quarters when Apple might just guide closer to consensus, or even inline (see last year’s Q4) and thus the combination might create a massive short squeeze/panic buying from confused long-time longs who had sold. But don’t pay attention to me, I have no clue about short term price movements (see my $263 target).

deagol,

Where do you come in comparison to the street’s expectations on Apple’s guidance?

FWIW, I’d be cautious about lowered expectations as a contrarian signal because that is the pattern with Apple. For example on an event, four out of five times the trader sells a long position the morning of the event and sells short at the same time, covers midmorning, waits for the run up before the event and shorts again. Halfway through the event, the trader covers one half of the short position and lets the rest ride. Basically the trader games peoples’ expectations. And it works four out of five times. Here is how it works: people expect Apple will underwhelm. But then they think the contrarian position is to think Apple will not underwhelm as much as expected and may pop when in point of fact, the stock will be sold by one third of the active market no matter what happens.

That said the street is expecting a bad tuesday for other market forces so it is possible that Apple could be so oversold that the typical trading pattern will not apply. 

[quote author=“Eric Landstrom”]
Where do you come in comparison to the street’s expectations on Apple’s guidance?

http://www.macobserver.com/forums/viewtopic.php?p=464186#464186

[quote author=“deagol”][quote author=“Eric Landstrom”]
Where do you come in comparison to the street’s expectations on Apple’s guidance?

http://www.macobserver.com/forums/viewtopic.php?p=464186#464186

Thanks.

You still expect a beat of the street’s guidance by 14 cents?

[quote author=“Eric Landstrom”][quote author=“deagol”][quote author=“Eric Landstrom”]
Where do you come in comparison to the street’s expectations on Apple’s guidance?

http://www.macobserver.com/forums/viewtopic.php?p=464186#464186

Thanks.

You still expect a beat of the street’s guidance by 14 cents?

That’s a 14 cent beat on the street’s consensus for Q4 which ended in September. Consensus for Q1 ending in December is at 1.67, 2 cents above what I expect Apple will guide (approximately). I expect actual results for Q1 north of 2 bucks.

I just checked yahoo again and it’s now at 1.66 down from 1.67 a couple days ago.

You’ll have to forgive my very short memory, but did anyone here at AFB anticipate this last quarter’s guidance of $1.00?

The last 4 years of the difference between Q4 eps and Q1 guidance have been:

+57%
- 8%
+16%
+30%

Let’s go by Deagol’s ests. (he’s usually a little low IMO) and we come in at $1.28

Thats gets guidance to:

Best: $2.00
Low: $1.48 (I threw out the negative number)
Avg. of last 2 years = 23% which gets us to $1.57. (even though they would probably earn around $2.00 - $2.10) and the street is looking for $1.66.

Great beat, not so great guidance = the usual? Just makes me doubtful with this climate. If I was Opie, I wouldn’t be betting on the same kind of Xmas numbers.

[quote author=“ConMan”]You’ll have to forgive my very short memory, but did anyone here at AFB anticipate this last quarter’s guidance of $1.00?

I was predicting 1.07 guidance on 1.31 actual, and now my actual is at 1.25.

[quote author=“ChasMac77”]
Let’s go by Deagol’s ests. (he’s usually a little low IMO) and we come in at $1.28

My most recent estimate is 1.25.

I believe Apple can surprise us with 4Q eps and estimates for 1Q 2009. My belief is because I think no one is paying much attention to the deferred revenue. Dawn Treader, Tommo_UK amongst others have mentioned this but there has been no detailed follow through. Let’s try again.

Apple is recognising revenue from the sale of iphones over 24 months or 8 quarters. We know how many phones have been sold to end of July quarter (approximately 6,125,000). Estimates of sales in the September Q are in the range of 7 to 7.5 million. Therefore gross revenues from the sale of phones in 1Q 2009 will be at least (no of phones sold to date*gross margin per phone*3)/24. On the assumption that gross margins are $200 per phone and shares outstanding are 900 million, I arrive at an eps from phones of $0.37.

Apple’s eps in 1Q 2007 and 2008 were $1.14 and $1.76 respectively. Based on my eps of phones of $0.37 above, it is hard to believe Apple cannot guide to at least $1.76 as even this figure implies a decline in revenues.

Listen to the last conference call again. Peter O. said that eps from phones will increase dramatically. I believe we will see this soon. JMHO but I hope someone will counter-check my figures especially with regard to cumulative sale of phones and gross margins.

[quote author=“deagol”][quote author=“ChasMac77”]
Let’s go by Deagol’s ests. (he’s usually a little low IMO) and we come in at $1.28

Mine to the penny.  I don’t think the EPS is much in doubt, within .03 either side won’t count for anything.  Sadly, it won’t make up for a lousy guidance #, and I don’t think Oppie is going to do us any favors.  The EPS contribution from iPhone revenue won’t provide enough cover if the anticipated economy spooks the outlook in forward guidance.  Perhaps 7mm iPhones will do the trick, but who the hell knows.

[quote author=“MacOz”]

Listen to the last conference call again. Peter O. said that eps from phones will increase dramatically. I believe we will see this soon. JMHO but I hope someone will counter-check my figures especially with regard to cumulative sale of phones and gross margins.

I hope I’m wrong, but I get .11 and .14 added from iPhones to overall EPS for Q2 and Q3, respectively. So I don’t see this as “dramatic.”  You have to go out a bit further, and WS doesn’t show much interest outside of 6 months, I’m afraid.

Edit:  Spreadsheet is becoming a horse blanket; I pulled 2008 vs. 2009 in error—See subsequent post to clarify.  The numbers start to spike in Q3 and Q4 of 2009.  But if my EPS #‘s hold with iPHones, then we may get WS’ attention sooner than later.

[quote author=“Mercel”][quote author=“MacOz”]

Listen to the last conference call again. Peter O. said that eps from phones will increase dramatically. I believe we will see this soon. JMHO but I hope someone will counter-check my figures especially with regard to cumulative sale of phones and gross margins.

I hope I’m wrong, but I get .11 and .14 added from iPhones to overall EPS for Q2 and Q3, respectively. So I don’t see this as “dramatic.”  You have to go out a bit further, and WS doesn’t show much interest outside of 6 months, I’m afraid.

Mercel which quarters are you referring to?  With the subscription accounting you can be sure that a Iphone sold during the 3rd Qtr will have a greater impact on the 4th qtr.  The Iphone revenue book is 1/720 per day so an Iphone sold on the last day of the quarter will have 90/720 of revenue in the 4th Qtr vs 1/720 in the 3rd Qtr.  If we assume straight line sales then the 4th Qtr revenue will double for the phones sold in the 3rd Qtr.  Going back to previous discussion I am using $225 average for COGS and average selling price of $549 which is a $324 per phone and a 59% Gross margin. By my calculations the iphone is way more profitable then any other device in Apples line up.  I don’t get how Apple will get to 30% GM with the Iphone becoming a bigger portion of revenue thus moving GM up.

Anticipating Pete’s guidance may be a useful exercise, but I think we’d all benefit more from anticipating the market’s reaction to the guidance. Judging from this year’s reports and the current market condition, I’m going to guess that at least 85% of the members here anticipate the share price will go down despite Apple reporting another record breaking quarter. How far and how fast is unpredictable, nor how high it might shoot up during the day of and at the numbers release at the close of trading. Since such moves are based on sentiment, greed and fear, numbers don’t help.