Apple 2.0

Covering the business that Steve Jobs built

Looking forward: Analysts focus on Apple's Q1 2014 guidance

October 27, 2013: 10:37 AM ET

On Monday, Apple will release its fiscal Q4 results. Some analysts have already moved on.

Source: Thomson Financial via Yahoo Finance.

Source: Thomson Financial via Yahoo Finance.

FORTUNE -- Bullish Cross' Andy Zaky, whose rise and spectacular fall as an Apple (AAPL) hedge fund manager is the stuff of investor legend, no longer cares what the company says on Monday about last quarter's sales and earnings.

And that's quite a change.

It was Zaky who first started pitting amateur Apple analysts against Wall Street's professionals -- the "Earnings Smackdown" ball I picked up five years ago and have been running with ever since.

For several years, the amateurs regularly trounced the pros, in part because guys like Zaky had a better handle on how the company was accounting for iPhone sales in the early years, and in part because Steve Jobs liked to play a lowball game with Wall Street, giving guidance so absurdly pessimistic nobody knew what to expect.

That's one of the things Tim Cook quietly changed when he took over as CEO. Now Apple gives "realistic" guidance, and for Zaky that drained all the drama out of the company's quarterly earnings reports.

"It's not like it was in the past where Apple would come out and beat its revenues by 20% or its earnings by 50%. That just doesn't happen anymore. The moment Apple started offering more realistic guidance is the moment that future earnings became far more important than 'how many iPhones Apple sold this quarter.' Once Apple offers its guidance, that quarter no longer matters." See How many iPhones did Apple sell last quarter?"

Zaky is not only one who feels that way. Here's what some of pros are saying.

Bill Shope, Goldman Sachs:

The company already announced that revenues and gross margins would come in at the high end of its guidance of $34-$37 billion and 36-37%, respectively, and we believe that supply constraints on the iPhone 5s likely capped significant upside from these levels. In addition, the company announced that it had sold a cumulative 170 million iPads earlier in October, which further clarifies the September quarter iPad figure. As a result, all the focus will be on the December quarter guidance. We are forecasting December quarter revenues and EPS of $55.0 billion and $13.95, versus consensus of $55.5 billion and $13.82. While revenues will be a focus, we believe the key source of buyside uncertainty is on the gross margin line, where our forecast stands at 37.7%. Our gross margin estimate represents a 77 basis point sequential increase and a 95 basis point annual decrease. Nevertheless, our initial BOM analysis of the new iPhones and the company's high-end iPad refresh yesterday suggests our estimate could prove conservative.

Gene Munter, Piper Jaffray:

For Apple's Sep-13 report (Monday, October 28th), we believe the core focus will be on December guidance since AAPL already reiterated the high end of its guidance for September ($34-$37 billion in revenue) following the iPhone 5S launch. We expect guidance for Dec-13 to be inline with the Street's 5% y/y revenue growth. We expect gross margin guidance of 37-38% inline with the Street, which would be up 50 bps from Sep-13 (see page 2 for details) and represent the first sequential increase in gross margin in six quarters. Finally, we expect commentary around increased sales and marketing, although it is unlikely to significantly impact EPS.

William Power, Baird:

FQ1 guidance in focus. We forecast FQ1 revenue and EPS of $54.7 billion and $13.88, in line with consensus. Depending on the ability to ramp iPhone 5S supply, the weak 5C demand and somewhat delayed iPad Mini launch could limit upside. Our forecasts include 51.6 million iPhones and 27.4 million iPads.

Daniel Ernst, Hudson Square:

We believe investor focus will again center on Apple's guidance for the next quarter where consensus has been on the rise. While we expect the iPhone to continue to perform well, and we are excited for the iPad refresh, we see 1) difficult comps against last year which saw a complete portfolio refresh, 2) the likely pull forward of iPhone sales into September given timing of the China launch this year, and 3) relatedly, consensus expectations for iPhone sales are somewhat high at 53M, vs. last year's 47.8M.

Ben Reitzes, Barclays:

As for guidance, we wouldn't be surprised to see Apple issue December quarter guidance in line with our EPS estimate of $13.62 (vs. consensus of $13.75) given upside to gross margins given upside in iPhones. However, Apple is likely to be conservative with regard to revenues – and could put the range in the lower $53-$54 billion range given product transitions (consensus = $54.51 billion). That being said, our research still points toward support for our December quarter iPhone unit estimate in the 54.7 million range, including up to 10 million iPhone 4S models, 10-15 million iPhone 5C's and well over 30 million iPhone 5S models. While builds are likely cut for the 5C, we believe builds are improving for the higher-priced 5S as yields for fingerprint sensors are fixed and real demand is materializing. We also believe a deal with China Mobile may become more apparent by the end of the December quarter, which could help support iPhone units in the March quarter. For the December quarter, we also look for management to guide gross margins in the range of 37-38% (we are modeling 37.6%) with the potential for upside given better than expected pricing for the 5C and a better-than-expected mix toward the 5C.

Join the Conversation
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.

Email | @philiped | RSS
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.