Budgeting, Planning & Forecasting

Budgeting, Planning & Forecasting

July 19, 2011

Apple Profit Seen as Beating Expectations

All systems appear to be a go for Apple’s (News - Alert) announcement of its third quarter earnings after the market closes today.  Bloomberg.com is reporting ahead of the results that the average prediction of analysts surveyed had:

  • 69 percent increasing in quarterly profits to $5.5 billion
  • Sales rising 59 percent to $25 billion

Businessinsider.com sees an even more bullish outcome based on estimated revenues of $26.72 billion resulting in an earnings per share (EPS) of $7.09. And, as is typical of Apple, this would far surpass the company’s June guidance of $5.03 of EPS on $23 billion revenue guidance, and their take on the Wall Street consensus that puts revenue at $24.92 billion and $5.80 for EPS.

Apple long ago mastered the art of setting expectations low and then blowing past them. In fact, the businessinsider.com chart of the day shows that since March of 2010, Apple has exceeded EPS guidance by on average 41 percent, and revenue guidance by a 16 percent average difference. While managing earnings to maximize the impact on share price is interesting, there is no denying the company is going to report it is on a roll.

Behind the results

The view from Wall Street is that robust iPad performance and the continued strength of Mac sales will be the drivers behind this quarter’s impressive performance.  iPad 2 sales are pegged at 7.7 million units which exceeds the holiday shopping 7.3 million iPad1 quarterly record.

And, despite the almost daily drumbeat of new tablets running the Android (News - Alert) operating system, the iPad2 is thriving and likely enjoying much of its success as a result of PC users investing in tablets rather than buying new PCs as the sluggish global market figures suggest, and this while Mac sales are likely to remain strong solidifying Apple’s new ranking as the world’s #3 PC supplier.

Momentum is building

 As good as these results are likely to be, the message from the company is also likely to focus on the fact that momentum is building. There is a lot more in the Apple tool kit awaiting the second half of this calendar year including:

  • An expected September release of a new iPhone (News - Alert) with a faster chip to improve overall performance especially for its camera but also improving real-time and streamed video experiences.
  • A new MacBook Air laptop.
  • Significant enhancements to iOS (over 200 new features expected this fall in iOS5) enabling consolidation of the synergies created by the iOS ecosystem.

The last point is significant. Building up the iOS enabled synergies not only creates stronger brand loyalty amongst the Apple faithful, but is likely to drive those contemplating smartphone upgrades or newbies to smartphone and tablet ownership in Apple’s direction, and not incidentally to the Apple App Store with 15 billion downloads and counting.  

No wonder the buzz out of Google and Microsoft (News - Alert) is a sudden focus on “ecosystems.” As much as competitors are aching to take a bite out of Apple, results are likely to indicate that old Satchel Paige quote is taken very seriously in Cupertino: “Don’t look back; they might be gaining on you.”

Peter Bernstein is a technology industry veteran, having worked in multiple capacities with several of the industry's biggest brands, including Avaya, Alcatel-Lucent, Telcordia, HP, Siemens (News - Alert), Nortel, France Telecom, and others, and having served on the Advisory Boards of 15 technology startups. To read more of Peter's work, please visit his columnist page.

Edited by Rich Steeves

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