Analyst: Apple’s Q3 Guidance too Conservative

Apple landed yet another record breaking quarter with its second quarter earnings report with revenue at US$13.5 billion and a quarterly profit of $3.07 billion. The Mac and iPhone maker projected it will show between $13 and $13.4 billion in its third fiscal quarter, and UBS analyst Maynard Um thinks the company is offering conservative guidance yet again.

Apple projected a third quarter gross margin of 36 percent, down from the second quarter’s 41.7 percent, and EPS between $2.28 and $2.39. The lower margin expectations stem from iPad mix, a stronger US dollar, the recent MacBook refresh, the education season, and a future product transition — most likely an iPhone upgrade.

“Based on our margin build up, [Apple’s] guidance appears too conservative as it, in our opinion, implies material margin degradation (500bps) in Macs & iPhones,” Mr. Um said. “We believe guidance sets up for another material beat/raise and expect continued momentum from a September iPhone ramp, Back-to-School, and then holidays.”

Looking forward, Mr. Um is raising his fiscal 2010 revenue estimate from $54 billion to $57.5 billion, and is raising his EPS from $12.04 to $13.22. For fiscal 2011, he is bumping his revenue estimate from $59.8 billion to $61.7 billion, and shifting his EPS estimate from $13.45 up to $14.36.

Mr. Um is maintaining his “Buy” rating and raising his target price for Apple’s stock from $280 up to $315. Apple is currently trading in the pre-market at $259.61, up 15.02 (6.14%).