Tech Check

Apple Likely to Wow Again

It seems like every earnings season I focus on Apple as the stock and company to watch, but this time around there's an added dramatic flare in the return of Steve Jobs.

And it would seem by the action in Apple shares over the past week, there's big time optimism that this company will beat. Again. Of course when you see this kind of momentum into an earnings report, there's the buy-on-the-rumor-sell-on-the-news risk, but I'm not sure that's what's shaping up now.

That's because, as I have consistently reported before, that Apple isn't a momentum stock, but an investment in fundamentals. There is every indication that Mac, iPhone and iPod sales remain solid, and that the company's margins remain robust.

Nobody buys Apple's conservative estimates game any more. The Street expects $1.16 on $8.2 billion in revenue. Apple was way below that in guidance (95 cents to $1). And RBC is at $1.27 and $8.3 billion as an example.

But that EPS is predicated on gross margins of about 33 percent and there are plenty of compelling arguments that suggest they could be substantially higher. RBC Capital says actual margins could be in the 33 or 35 percent range thanks sales of higher margin iPhone and iPod Touch sales. Canaccord Research says 35 percent.

On a product to product basis, the Street expects 4.5 million to 5 million iPhones, though RBC projects 5.3 million iPhones to sell; iPod consensus ranges between 10 million and 11 million units; and on the Mac front, 2.3 million to 2.5 million.

So those are the pros.

But quarter after quarter, I've also been keeping stats handy from both Andy Zaky and Turley Muller, both of whom posted their analysis over the weekend.

Zaky says the Apple story will again largely be driven by gross margin. He points out that for its third quarter, Apple's management anticipates 33 percent margins, and "that is the most aggressive gross margin forecast Apple has put out to date." He expects something closer to 37 percent. And based on that, he expects Apple to report $1.34 a share. (Incidentally, he's expecting 5.2 million iPhones; 10.3 million iPods; and 2.4 million Macs to sell.) That should work out to $8.249 billion in revenue.

Muller agrees that gross margins will again tell the Apple story, anticipating 36.5 percent, which should translate into $1.35 in EPS on $8.3 billion.

Both these guys are worth a look-see, and they've been giving the Street pros a run for their accuracy money in quarter's past.

The wild card tomorrow has nothing to do with Apple's numbers and everything to do with management. Steve Jobs returned to the helmin an almost stealth way just as the quarter ended. No fanfare. No specific announcement.

His return was heralded with a single quote in a press release, the first time he had appeared in a company missive since taking medical leave in January. He's working at the office part of the week, and from home during the balance of the week. Jobs rarely appears on the company's conference call with analysts but there's a thought out there that he might take some time for some comments tomorrow.

I suspect that's a long shot, but it sure would be received warmly by analysts looking for some handholding.

That aside, handholding might not be necessary. Tim Cook did a stellar job managing Apple in Jobs' absence, and if consensus is accurate, Apple is doing more than just fine. What the company has to say about its back to school quarter will be key, especially with all the worries that consumers simply aren't spending. If anything, Apple has proven again and again that while typical consumers might not be spending elsewhere, it might be because they're saving up to buy Apple products.

Not recession immune, but Apple continues to prove that it is certainly recession-averse.

Questions?  Comments?