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Whipsawed Apple Investors Prep for Earnings

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Normally, I'll put together a formal earnings preview the day the company is set to announce, but in the case of Apple, there has been so much interest so far ahead of these numbers that I thought I'd do it today instead -- and run some of your e-mails about all this tomorrow.

I don't think it's much of a stretch to proclaim that these might be among the most important earnings numbers ever for Apple, given the climate on Wall Street nowadays.

Apple shares have been whipsawed, from a high north of $200 late last year, plunging to a low below $120 mere weeks later, and then scratching and clawing their way back to just shy of $170 yesterday.

And then, a new analyst report, more concerns -- and the itsy-bitsy spider of a stock is tumbling its way back down the water spout.

Today's concerns come courtesy of Shaw Wu at American Technology Research, downgrading shares because of the high expectations that have pushed shares up 40 percent over the last month. He's not concerned that the company will post a strong quarter relative to guidance -- but instead, worried whether the numbers will be good enough.

But what if the run-up in Apple shares this month wasn't necessarily because of optimism or euphoria surrounding Wednesday's report, but was instead a recovery rally because investors realize shares were pushed down too severely to begin with?

The latter seems plausible, especially following yesterday's RBC Capital upgrade and target increase (which I wrote about yesterday). There was also the newly bullish perspective from Piper Jaffray's Gene Munster about Mac, iPhone and even iPod expectations.

The conventional wisdom goes something like this: Apple should report as much as 2.1 million to 2.15 million Macs sold on the quarter. I've seen some wild projections out there, at or around 2.3 million, but I don't think that's realistic.

On the iPhone front, the Street anticipates 1.7 million units sold on the quarter, though Piper is looking for something better: maybe as many as 2 million units.

And for iPods, the Street is as high as 10 million units, though Piper again is bullish, anticipating as many as 10.5 million. RBC says 1.8 million iPhones sold on the quarter is realistic; expecting 2.2 million Macs sold, and weakness in iPod sales.

Thomson consensus is $1.07 in EPS on $6.95 billion in revenue, though RBC is at $1.11 and $7.2 billion.

Guidance is also key, though in a kind of antithetical sort of way: that's because Apple always, and I mean, ALWAYS, low-balls the Street.

In fact, Piper's Gene Munster says that over the last seven quarters, Apple has guided on average revenue 9 percent below Street consensus, and the earnings 4 percent below. Which means we'll have to do the math on Wednesday afternoon to see whether Apple is bullish, bearish or essentially in line with what analysts are really expecting.

As it stands, the Street is looking for Apple to guide to $1 a share in earnings, and $6.8 billion in revenue, if Apple guides to its historical range. That's what the company should say. And then analysts will plug in a healthy dose of reality and come up with the estimates that they're truly anticipating, or, as Piper's Munster tells me, "the game begins again."

And what a game it is: This time around, iPhone is a kind of wildcard. No one disputes the enormous momentum surrounding Mac, with sales growing dramatically better compared to Hewlett-Packard and Dell. But there are more questions surrounding iPhone.

Yesterday, Texas Instruments said it is seeing slowness in smart phone adoption; Nokia suffered some weakness last week; AT&T, Apple's iPhone partner, points to "continued solid growth" in today's earnings quarter, though the Street may not be so optimistic about AT&T's prospects, iPhone notwithstanding. If this company beats on this number alone, and Macs perform solidly, Apple shares might be off to the races.

All the fundamentals seem to point to continued strength at this company -- and not just for this quarter, but for the foreseeable future. It's at the zenith of the digital entertainment revolution, with no debt and $19 billion in cash in the bank.

You just have to wonder whether investors taking money off the table today, banking a piece of the 40 percent run this past month, are squandering a bigger opportunity post-Apple earnings tomorrow.

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