While Apple posted
strong fiscal third-quarter earnings earlier this week, the company tempered expectations for the fourth-quarter by predicting earnings of 49 to 51 cents a share—short of what what Wall Street had been anticipating. But that isn’t worrying some analysts who felt that previous expectations for Apple’s performance had become inflated.
“I think that analysts jumped out ahead with big numbers,” said Needham & Company analyst Charles Wolf.
Warnings that Apple’s fourth-quarter numbers would fall short of Wall Street’s rosy outlook came a week before this week’s third-quarter results were announced, when Credit Suisse First Boston analyst Robert Semple issued a report pegging Apple’s fourth-quarter earnings at 50 cents a share; that compared to the 52 cent-per-share consensus estimate among other analysts.
Semple’s expectation matched the guidance issued by Apple this week. Briefing analysts, Apple CFO Peter Oppenheimer forecast revenue of about $4.5 to $4.6 billion and earnings between 46 and 48 cents a share, including an estimated expense from stock-based compensation. Removing that expense, Apple’s estimate falls within the 49-cent to 51-cent per share range.
Analysts polled by research firm Thomson Financial expected Apple to report revenue of $4.94 billion with the 52-cent-per-share profit.
Needham’s Wolf has a very simple explanation for the lofty expectations: inexperienced analysts. With the iPod catapulting Apple into the world’s stage over the last few years, more and more analysts have started following the company and its product cycles.
“There’s too many analysts following these companies that haven’t followed them very long,” Wolf said. “All you had to do was trace out the sequential change between June and September and you had to see those estimates were ridiculous. It’s an education quarter, and that’s all it is. You can’t expect a big jump between June and September.”
But that’s no cause for concern, even for Credit Suisse First Boston’s Semple. “If you compare it to last year it’s actually pretty similar,” Semple told
. “Last year was a quarter where they were working down iPod sales, the iPod mini was reaching its end of life and making way for the nano. They used the majority of the September quarter to reduce those inventories.”
Likewise, Semple said he expects Apple to use this September to once again reduce iPod inventories as the company prepares for a refresh of the popular music player. He expects the new iPods to arrive in the September to October timeframe.
“There’s a lot of speculation on the iPod front,” Semple said. “But it does certainly does feel like we’re seeing last year play out again in terms of the sequential guidance. I kind of think it’s déjà vu all over again.”
Of course, a forecast is just that—an expectation by Apple of what analysts and shareholders should expect to see in the next quarter. Apple still has every opportunity to fall short of or exceed those expectations. Both analysts noted that actual earnings would depend on when and if Apple releases a new iPod, and based on the company’ past history it is more likely to come later in the year
“iPod sales could be very strong or continue at 8 million [units], depending on whether Apple introduces new iPods in September,” said Wolf, noting that Apple never reveals new products ahead of time. “You could see it in September or October. We can be certain that there will be a date in that six week time period that will lead into iPods for Christmas.”
For its part, Apple executives seemed very comfortable with the forecast laid out during the earnings conference call. Apple also indicated that the projections were consistent with past performance.
“Our guidance through the September quarter actually is consistent with our past seasonality, and our range represents growth of 22 to 25 percent over last year,” Oppenheimer told analyst during Wednesday’s
conference call. “And again, the last year’s September quarter, was the best Mac sales quarter we had in education in 10 years.”