Apple reported record breaking numbers during its first quarter earnings conference call on January 25, and also announced that it had implemented new accounting practices. As usual, Apple offered conservative guidance for its second fiscal quarter, but now that subscription accounting is out of the picture UBS analyst Maynard Um thinks the company's guidance many need to be reinterpreted.
"Given the change in accounting, the key questionis how conservative this guidance is given the difficulty of using historical outperformance to judge future potential performance," Mr. Um said.
Apple previously used subscription accounting to report iPhone and Apple TV sales, which spread the per-unit revenue out over 24 months to account for major software upgrades. The new accounting practices let the company account for sales in the quarter they were made.
Based on the new accounting rules, Apple's guidance is still likely to be conservative, and Mr. Um expects UBS's estimates may be conservative, too.
"Although 'new' guidance brings some new uncertainty (hence, initial sell off aftermarket), margin guidance of 39 percent implies 500bps of margin pressure in Macs and iPhones, which is likely unrealistic," he said. "Our March Mac units are also likely conservative, potentially by about 200,000 units, or about $0.08 in EPS."
Analysts are also watching to see what Apple introduces at its special media event on January 27. The general consensus is that Apple will finally show off its rumored tablet form factor device, but that doesn't necessarily mean it will ship right away.
Mr. Um is projecting Apple will show about US$0.01 EPS for each 100,000 tablets sold, and that Apple plans to make about 900,000 tablets during its initial rollout. If Apple does release its tablet during the March quarter, Mr. Um expects that will make his current earnings estimates low.
He is estimating Apple will report $11.5 billion in revenue for its March quarter with a 42.1 percent margin. For fiscal 2010, he is predicting Apple will report $52.1 billion in revenue, and $56.6 billion in 2011.
Mr. Um is maintaining his "Buy" rating and $280 target price for Apple's stock. Apple is currently trading in the pre-market at $207.75, up 4.68 (2.30%).