Zaky: Why Apple?s Guidance is Still Conservative (new article 12/13)

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    Posted: 13 December 2011 01:49 PM

    http://bullishcross.com/why-apples-guidance-is-still-conservative/

    He just published a new article.  He’s on a roll.  This is a good read. 

    Another piece in the puzzle supporting his argument that Wall St. is making a mistake and really undervaluing AAPL (again) and that if you focus on Apple’s Revenue guidance you can get a real insight into what to expect Apple to report this quarter. 

    This assumes that Apple is selling about almost everything it can produce (which I would argue is still true enough to be a good working position).

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    Posted: 13 December 2011 02:26 PM #1

    Seems like today is article publishing day (maybe all the major players are fully positioned grin ... or they’re providing cover for big funds getting ready for year end window dressing?

    Philip Elmer-DeWitt on Sacconaghi: Apple?s stock price reflects ?fantastically pessimistic assumptions?
    ?Bernstein?s top Apple analyst joins the chorus questioning the stock?s dismal valuation?
    http://tech.fortune.cnn.com/2011/12/13/sacconaghi-apples-stock-price-reflects-fantastically-pessimistic-assumptions/

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    Posted: 13 December 2011 02:34 PM #2

    ChicagoBob - 13 December 2011 06:26 PM

    Seems like today is article publishing day (maybe all the major players are fully positioned grin ... or they’re providing cover for big funds getting ready for year end window dressing?

    Philip Elmer-DeWitt on Sacconaghi: Apple?s stock price reflects ?fantastically pessimistic assumptions?
    ?Bernstein?s top Apple analyst joins the chorus questioning the stock?s dismal valuation?
    http://tech.fortune.cnn.com/2011/12/13/sacconaghi-apples-stock-price-reflects-fantastically-pessimistic-assumptions/

    You should track this!

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    Posted: 13 December 2011 03:38 PM #3

    Zaky’s newest article is much more focused than the last one (albeit with a few typos).  And I liked the last one too.

    Keep up the good work!

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  • Posted: 13 December 2011 04:55 PM #4

    Mav - 13 December 2011 07:38 PM

    Zaky’s newest article is much more focused than the last one (albeit with a few typos).  And I liked the last one too.

    I liked this one as well.  Tone was very different (didn’t bruise my delicate sensibilities).

    I do take exception with his revenue beat range of 12% to 18%.  I think the bottom of the range is higher, I believe it to be 15%.  As partial evidence of this I point out Q2/2011 guidance vs results.

    Apple guided revenue $1,000,000 lower than Q1, but EPS was guided 10? HIGHER.  The higher EPS guidance had not happened in prior periods going back to fiscal 2004.  Q2 revenue did exceed guidance, but I feel missed internal estimates by $600 million (15% planned beat), and missed EPS, which actually came in lower (not higher) than Q1.

    Q2 was the quarter that Japan suffered a serious earthquake (March 11: sixteen days prior to end of quarter).  I believe that event did materially impact iPad component supply, and increased costs with emergency spot market purchases.  It was reported (shortly afterwards) that TC went to Japan with suitcases full of money.  To support that I point to Q3 guidance vs results.

    Apple guided revenue $1,000,000 higher than Q2 (same level as Q1) but posted revenue that was 24.22% higher than guidance.
    EPS guidance was 2.65% higher for Q3, but posted results that were 21.7% higher.  I attribute this “beat” to Q2 unfulfilled demand for iPads being shifted to Q3.  Look at iPad shipments for FQ4/2010, FQ1/2011, FQ2/2011 and FQ3/2011.  You’ll note FQ3/2011 revenue results exceeded the beat range by 33%, an extraordinary result.

    I show FQ4/2010, FQ2/2011 and FQ4/2011 as misses attributable to missed iPhone or iPad shipments (not decrease in demand).

    I don’t know where Andy got his FQ1/2012 results, as they haven’t been posted yet.  He may be using estimated results.

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  • Posted: 13 December 2011 05:56 PM #5

    Gregg Thurman - 13 December 2011 08:55 PM
    Mav - 13 December 2011 07:38 PM

    Zaky’s newest article is much more focused than the last one (albeit with a few typos).  And I liked the last one too.

    I liked this one as well.  Tone was very different (didn’t bruise my delicate sensibilities).

    I do take exception with his revenue beat range of 12% to 18%.  I think the bottom of the range is higher, I believe it to be 15%.  As partial evidence of this I point out Q2/2011 guidance vs results.

    So I didn’t make up this lower range.  Apple has reported a 12-13% beat on three separate occasions since undergoing its recent accounting change. 

    Apple may very well be shooting for a higher range, and maybe there’s an intrinsically higher range, but on an actual factual basis, there are three different times where Apple only beat by 12-13%.  I don’t have an opinion on what the intrinsic range actually is because I don’t have enough evidence where I’m comfortable enough to make a conclusion one way or another.

         
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    Posted: 13 December 2011 06:02 PM #6

    12-13% is a very “responsible” upward adjustment from revenue guidance, in my opinion.  It may well be too low, but we’re all recalibrating after the fiscal Q4 2011 results.

    $11.50+ EPS still leads Wall Street by a large margin (>15% over consensus), which is a good sign.

    $42B revs is still a great quarter for Apple.  That a 57% YOY jump in revs, and really, it’s a conservative, “base” case.  When was the last time you saw any company have that kind of jump from around $25B in revs?

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  • Posted: 13 December 2011 06:19 PM #7

    Mav - 13 December 2011 10:02 PM

    12-13% is a very “responsible” upward adjustment from revenue guidance, in my opinion.  It may well be too low, but we’re all recalibrating after the fiscal Q4 2011 results.

    $11.50+ EPS still leads Wall Street by a large margin (>15% over consensus), which is a good sign.

    $42B revs is still a great quarter for Apple.  That a 57% YOY jump in revs, and really, it’s a conservative, “base” case.  When was the last time you saw any company have that kind of jump from around $25B in revs?

    More important than leading WS is Apple executing.  :  )

    So far it looks like they are going to beat everybody again.

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  • Posted: 13 December 2011 06:25 PM #8

    Gregg Thurman - 13 December 2011 10:19 PM
    Mav - 13 December 2011 10:02 PM

    12-13% is a very “responsible” upward adjustment from revenue guidance, in my opinion.  It may well be too low, but we’re all recalibrating after the fiscal Q4 2011 results.

    $11.50+ EPS still leads Wall Street by a large margin (>15% over consensus), which is a good sign.

    $42B revs is still a great quarter for Apple.  That a 57% YOY jump in revs, and really, it’s a conservative, “base” case.  When was the last time you saw any company have that kind of jump from around $25B in revs?

    More important than leading WS is Apple executing.  :  )

    So far it looks like they are going to beat everybody again.

    Right now.  That’s what I suspect.  I think that those who are on the high end of the range will be proven the closest.  I think there’s a lot of evidence to suggest that Apple will report sales of about 35 million iPhones which is about $1.8 billion above our estimates of $42 billion.

    I’m just going into this quarter with a lot more caution until I see Apple deliver a larger beat than the lower end of its range.

    it is interesting to note that the last two times that Apple guided >$1 billion above the street, the company beat its guidance by 12.42% and 13.02% respectively.  Maybe that’s something to consider.

         
  • Posted: 13 December 2011 06:28 PM #9

    andyzaky - 13 December 2011 09:56 PM
    Gregg Thurman - 13 December 2011 08:55 PM
    Mav - 13 December 2011 07:38 PM

    Zaky’s newest article is much more focused than the last one (albeit with a few typos).  And I liked the last one too.

    I liked this one as well.  Tone was very different (didn’t bruise my delicate sensibilities).

    I do take exception with his revenue beat range of 12% to 18%.  I think the bottom of the range is higher, I believe it to be 15%.  As partial evidence of this I point out Q2/2011 guidance vs results.

    So I didn’t make up this lower range.  Apple has reported a 12-13% beat on three separate occasions since undergoing its recent accounting change. 

    Apple may very well be shooting for a higher range, and maybe there’s an intrinsically higher range, but on an actual factual basis, there are three different times where Apple only beat by 12-13%.  I don’t have an opinion on what the intrinsic range actually is because I don’t have enough evidence where I’m comfortable enough to make a conclusion one way or another.

    I think determining what Apple’s intended range is, is important.  We need to know when Apple’s own estimates aren’t met. I’ve been working that angle on the EPS side, but will now include the Revenue aspect as well.  Thank you Andy.

    The possibility that others are making those kinds of determinations could precipitate an unexpected post earnings selloff.  I don’t want to be buying, when the big boys have determined that they should be selling.

    A healthy part of my theory on why AAPL’s ISM/PE is so low, is that Apple hasn’t been achieving the numbers institutions are estimating (missing numbers hurts), regardless of what WS is forecasting.

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    Posted: 13 December 2011 07:02 PM #10

    Great article Andy.

    Slightly off topic - but with iphone 4S still rolling out & ramping up production (and debuting part way through Q1) - Does anyone think there is a chance guidance for Q2 will be higher than Q1 guidance?

    eg. 40 million+ iphones & 13 million+ ipads (thanks to ipad 3 launch)

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    Posted: 13 December 2011 07:06 PM #11

    40+ million iPhones = I’m not sure demand is there for that amount of unit sales just yet.  China Mobile?  Sure, but they supposedly are holding out for LTE.

    Guidance of over $37B would dumbfound the Street - at present they’re at a laughable $31.56B consensus. 

    Seasonality will probably mean sequentially lower iPad sales.  If I had to guess, I’d say 10M is a somewhat optimistic projection for Q2 2012.

    If Apple guides to $33-35B, that’ll be just fine.

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  • Posted: 13 December 2011 07:17 PM #12

    iOSWeekly - 13 December 2011 11:02 PM

    Great article Andy.

    Slightly off topic - but with iphone 4S still rolling out & ramping up production (and debuting part way through Q1) - Does anyone think there is a chance guidance for Q2 will be higher than Q1 guidance?

    eg. 40 million+ iphones & 13 million+ ipads (thanks to ipad 3 launch)

    Apple has guided higher EPS for Q2 vs Q1 only once since F2004, and that was this past Q2 (which Apple missed).

    I’m guestimating PO and TC will guide Revenue and EPS for Q2 at $8.35 and $34.4 Billion respectively.

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    Posted: 13 December 2011 07:28 PM #13

    I’ve been taking from Andys excellent articles two main points. The first is that rev. Is the main or even only number.
    Much more important is the fact that Apple is very good at est. this number because they don’t have to est. demand as they sell all they can make and Tim is very good at knowing this number ( how much they can produce).

    If you take that and factor Horaces’ point about how much capital expenditure is ramping up then the next year or so is set to be record breaking.

    All in all I can’t think of a better stock to own for this time frame.

    It seems if you were ever going to undeversify and back up the dump truck to load up then this would be a good time to do it.

    I think that is how Buffett made his billions.  Doesn’t this stock have Graham and Dodd written all over it?

    Eric in Austin

         
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    Posted: 14 December 2011 12:02 AM #14

    Mav - 13 December 2011 11:06 PM

    40+ million iPhones = I’m not sure demand is there for that amount of unit sales just yet.  China Mobile?  Sure, but they supposedly are holding out for LTE.

    Guidance of over $37B would dumbfound the Street - at present they’re at a laughable $31.56B consensus. 

    Seasonality will probably mean sequentially lower iPad sales.  If I had to guess, I’d say 10M is a somewhat optimistic projection for Q2 2012.

    If Apple guides to $33-35B, that’ll be just fine.

    Unlike any previous Q2, this will be the first where it is the first full quarter of availability for a new iPhone model (Due to the delayed release this year of iPhone 4S). Also factor in the dramatic increase in carriers that came along with the iPhone 4S release. Also consider that there are existing iPhone markets still waiting for the iPhone 4S to launch.

    No idea on iPad sales - I’m hopeful that apple does a better job with production rampup with the ipad 3 launch compared to this years iPad 2 launch, combined with a good chance for a $399 iPad 2 sticking around.

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    Posted: 14 December 2011 12:12 AM #15

    Apple will satisfy iPhone 4S demand as best it can, of course, but I think it knows that many, many users are waiting for iPhone 5, so my guess is that Apple will ramp up “deliberately” (“responsibly?”) just like it has in the past.

    China Mobile (and Telecom) represent a huge amount of untapped demand, but it’s not clear, at least for China Mobile, if iPhone 4S will be available.  There’s always that chance - though less than 50/50, I think - that the iPhone 5 will NOT have LTE onboard.  TD-LTE is critical in order for China Mobile to start selling the iPhone “for real” - leaving the years of hard bargaining with Apple aside.

    iOSWeekly, what’re your thoughts on iPad seasonality?

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