Apple 2.0

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Apple's 'jaw-dropping' third quarter: The analysts weigh in

July 20, 2011: 5:46 AM ET

A sampling of reactions to Apple's (AAPL) profits growing 125% year over year

IDC's Al Hilwa:  "Apple's growth in the third quarter was simply jaw-dropping. In 20 years of following tech I have seen very few companies in the $90 to $100 billion run-rate and none that have produced 80% organic quarterly growth. The success of the iPad truly crystallizes the point that we are living in an era of rapid transformation."

Ticonderoga's Brian White: "Apple's performance last night speaks for itself. Looking into the second-half of 2011, we believe Apple enjoys the hottest tech portfolio for the back to school season and holidays. As such, we expect this rally to have legs and the 100 plus point uptick in the stock price that we have been highlighting is on track." Reiterates $666 price target.

Susquehanna's Jeff Fidacaro: "Investor concerns heading into the June quarter now appear way back in the distance in the rear-view mirror. We believe Apple's launch of iCloud services keeps it ahead of the curve versus its competitors and should help sustain current momentum. In addition, FY3Q11 results illustrate Apple has had significant success in penetrating the Asia Pacific market and is starting to ramp in key emerging markets as well, and this is without having a low-end smartphone or tablet in the portfolio." Raises price target to $535 from $465.

Gleacher's Brian Marshall: "Oh, Crikey! Did they Really Just Post those Results?!? AAPL continues to defy modern principles of economics and delivered the investment community something never seen before (e.g., quarterly revenue of $28.6bil growing 80%+ Y/Y versus IBM for example at $26.7bil and 5% constant currency Y/Y). Additionally, we expect AAPL will become the largest market cap company on the planet when the stock hits approximately $445 which is only about 13% away from aftermarket levels." Raises price target to $500 from $450.

Piper Jaffray's Gene Munster: "Apple exceeded Street EPS estimates by 37%, which is 16 percentage points better than a typical Apple beat. The June quarter was driven by better-than-expect iPhone, iPad and international sales. Despite the law of large numbers, we believe Apple's impressive growth can continue based on the size of the addressable iPhone and iPad markets. Based on comments from management on last night's earnings call, we continue to believe the next gen iPhone will ship in the month of September." Raises price target to $607 from $554.

CitiGroup's Richard Gardner: "We are raising our estimates and target significantly for the second time in a week following stellar 2CQ11 results. Even without aggressive valuation assumptions, our revised estimates suggest a new twelve-month target of $480, more than 20% above the current share price. We therefore reiterate a Buy (1H) rating on AAPL shares and remain buyers heading into a steady stream of new product introductions and peak seasonal demand in coming months." Raises price target to $480.

BMO's Keith Bachman: "We continue to see upside potential to our iPhone and iPad estimates, as Apple expands its network of partners. We note that Apple added 43 new carrier partners in the June quarter, for a total of 228 carriers. This compares with RIM with around 470 carrier partners worldwide. Hence, we believe Apple has more carrier partners to add the iPhone, including several large operators in the US and Asia. More broadly, Apple continues to expand its network and presence, including international retail openings, while the iPad distribution is just beginning to ramp. For example, the iPad is currently available in 64 countries compared with the iPhone in 105 countries." Raises price target to $450 from $420.

Barclays Capital's Ben Reitzes: "Pad shipments were 9.25mn units, 17% higher than consensus of 7.9mn units, for the first time outsold its iPods."

Needham's Charlie Wolf: "The iPad has to be viewed as the sleeper product in Apple's lineup because it's being deployed in activities that Apple's management could not have imagined. It outsold the Mac in K-12, which might explain the Mac's relative modest sequential growth in June. Nonetheless, year-over- year Mac growth was five times the market's growth rate." Raises price target to $450.

CLSA's Avi Silver: "We estimate iPad outsold Android tablets by a factor of approximately 9.25 to 1 (reflects sell-through for Android based on OS data provided by Google) despite many competitive Android tablet launches in the Jun-Q. In addition, our checks in Europe suggest Samsung is struggling with its release of the Galaxy-Tab, which has been delayed for a second time in parts of that region." Raises price target to $505 from $425.

BGC's Colin Gillis: "Apple remains our best large-cap investment idea for investors seeking growth in a technology company. We also favor the valuation of the company given its growth profile.  The company reported upside June quarter results driven by strength in all product categories... Revenue growth of 82% YoY was the second best growth rate in recent company history. Impressively for a company of Apple's size, revenue growth has been accelerating all year from 61.3% in prior June quarter, to 66.7% in the September quarter, 70.5% in the December quarter and 82.7% YoY growth in the March quarter... We expect that this is the peak growth rate the company is going to achieve and that growth decelerates as the iPad has passed its one year anniversary. " Raises price target to $450 from $430.

Rodman & Renshaw's Ashok Kumar: "Our checks indicate that Apple could possibly release a mid-cycle refresh of the iPad that is essentially a spec upgrade – slimmer profile, higher screen/camera resolution - by year end. Apple will be onto to Gen 2.5 while competitive tablets have fallen significantly short of expectations. Both Hewlett-Packard and Samsung have slashed production forecasts of the TouchPad and Galaxy Tab respectively. While RIMM is rumored to end-of-life the WiFi model of PlayBook by year end." $450 target price unchanged.

RBC's Mike Abramsky (writing about RIM): "While both iPhone 4 and the latest BlackBerry devices are ~1 year old, Apple shipped 20.3M iPhones Q3/F11 (June), up 142% Y/Y, nearly 8x faster growth than RIM's Q1/F12 (May) smartphone shipments (13.2M, 18% Y/Y), affirming the massive global opportunity for iPhone."

RBC's Mike Abramsky (writing about Apple): "Rather than cutting price, AAPL – as it did in the U.S. – is betting that consumers in Asia, Europe, and RoW will "pay up" for iPhone's innovation, features, brand, and luxury status (offering prior versions at discounts). Apple's China opportunity appears staggering ($9B YTD, on track to exceed Apple's entire F05 revenue)." Raises price target to $500 from $450.

Deutsche Bank's Chris Whitmore: "International growth was particularly impressive with APAC revs +247% Y/Y (led by China and Brazil) and Japan +66% Y/Y and highlights the growing momentum behind the platform and the considerable opportunity for Apple to build on international share gains. In addition, management highlighted its Chinese operations which showed robust growth during the Q, with revs of ~$3.8B or 6x Y/Y growth." Raises price target to $500.

Atlantic Equities' James Cordwell: "The iPhone was once again the standout performer, with units +142% YoY to 20.3m versus consensus of 17.0m. Emerging markets were particularly strong, with performance also assisted by the addition of a number of new carrier partners. iPad shipments were also very strong, +182% YoY, despite being supply constrained throughout the quarter. Macs were the one area of relative weakness (+14% YoY), with management highlighting both delayed purchases ahead of the Lion OS launch and iPad cannibalisation as key factors (though we see the iPad as a net positive for Apple as cannibalisation is likely to be more significant for Windows PCs)." Raises price target to $520 from $455.

Canaccord Genuity's T. Michael Walkley: "For Q4/F2011, consistent with management guidance and our expectations of the iPhone 5 launch late in the September quarter, we are modeling a sequential decline from 20.3M units in the June quarter to 15.8M units in the September quarter. Following the launch of the new iPhone, we anticipate a very strong ramp in sales, leading to our 25.1M unit estimate for the December quarter." Raises price target to $510 from $500.

Morgan Stanley's Katy Huberty: "Key catalysts over the next 6 months include: 1) launch of Mac OS X Lion tomorrow; 2) launch of iCloud (Fall 2011); 3) new iPhone with possible price cuts on older versions in September; 4) new iPad launch with possible price cut this Fall; and 5) improving component costs and manufacturing yields which put upward pressure on margins or at the very least offset the negative impact from revenue deferrals and lower iPhone/iPad prices." Raises price target to $468.

Cross Research's Shannon Cross: "We think these results show the strength of Apple's Asian expansion (Asia Pac now 22% of sales, growing 250% y/y), continued market dominance of the iPad2 (as successors fail to launch compelling alternatives) and benefit from mix shift to higher gross margin products (20.3M iPhones). We believe Apple is well positioned into back to school and the holiday season." Reiterates $470 price target.

William Blair's Anil Doradla: "Fiscal fourth quarter 2011 guidance was set at about $25.0 billion in revenue and about $5.50 in EPS, which compares with consensus of $27.7 billion and $6.45, respectively. Historically, Apple gives very conservative guidance, and we view current-quarter guidance to be conservative as well." Increases Q4 EPS to $6.81 from $6.27.

Cowan's Matthew Hoffman: "Management guided gross margins lower, to just 38% (-370 bps q/q) and hinted at a key product transition planned for later in F4Q11. The lower overall gross margin outlook is driven by (1) the expected change to Apple's product mix, (2) the expected loss of leverage on lower (guided) sequential sales, (3) the cost of a future product transition (the next iPhone, we assume), and (4) a full quarter of back-to-school promotions. We assume a much more robust top-line ($30.7B), driven q/q by higher iPad sales."

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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