Apple’s Q1 Earnings: It’s Not About Numbers

by James Brumley | January 22, 2013 9:13 am


If all goes as expected Wednesday, Apple (NASDAQ:AAPL[1]) will report a profit of $13.41 per share for last quarter. The pros are looking for that number on $54.7 billion in sales.

It’s an interesting disparity when you really start to crunch the numbers, as the tech company is expected to do less with more. How’s that? The projected top line is 18% higher than the year-ago figure, yet Apple should be earning about 3.3% less, pointing to shrinking margins despite the introduction of the iPhone 5 during the quarter.

Then again, with Apple being Apple, there’s always more to the story. Here’s the rest of it:

Starting to Struggle?

Just for the record, Apple has topped estimates in 13 of its past 16 quarters. However, those three misses were last quarter, the quarter before that, and five quarters ago. Point being, Apple’s recent results have been just as apt to be disappointing as they are pleasantly surprising.

It also should be noted that the last three times Apple missed its earnings forecasts, the company still posted ridiculous earnings growth. So, take it all with a grain of salt — the analyst community might have set its bars unnecessarily high.

Be that as it may, there’s far more on investors’ minds right now than a mere earnings beat or miss for one quarter. This is a proverbial crunch time for the company. Although the iPhone 5 and the latest iPad (plus the iPad Mini) have all been well-received, a major cutback in LCD screen orders against the backdrop of news about a lower-priced iPhone on the way have suggested — at least to some — that Apple’s growth is about to slow and/or that it has already heavily saturated its target market.

The Warning Shot

It’s not exactly news at this point, but Apple reportedly slashed its order for the 9.7-inch iPad LCD screens[2] just a few days after it cut back on orders for iPhone components. At about the same time it reduced its need for the larger iPad screens, Apple also announced intentions to release a lower-priced iPhone[3] later this year.

The news itself wouldn’t be nearly as alarming were it any other company. But, it’s so un-Apple-like. Yet, for all the numerically based concerns being voiced, it’s the philosophical ones that are perhaps the most troubling.

A lower-priced iPhone? Part of the demand — maybe even the “mystique” — of the Apple brand name and the iPhone specifically was that it was a premium-priced product that wasn’t owned by just anyone. If anyone and everyone can own an iPhone, could demand further taper? Or is the actual premium smartphone market saturated?

As for cutting orders of the larger LCD screens, this may well represent a shift from a focus on the larger tablet to the new iPad Mini. However, it still points to (in a sense) possible saturation. Rather than being able to market large and small tablets, the company is forced into a larger or smaller offering. Perhaps Apple’s largest target market — existing Apple product owners — aren’t clamoring for upgraded versions like they used to.

That’s not to say Apple is in its death bed. But there clearly are a couple legitimate questions investors should be asking here.

Problem Is …

Like so many other companies, Apple has gotten good at highlighting the positives about its quarterly numbers, and painting a relatively rosy picture of the future … whether or not the outlook is actually rosy. Apple has upped that game by also presenting its quarterly results and outlook with the same cool/chic aloofness that it uses when hosting media events to unveil new products.

Ironically, the least important aspect of Wednesday’s numbers are the numbers themselves. What the market really needs to see with Apple now (after the stock’s nearly 30% drubbing since mid-September) is that it has a compelling future rather than a desperate one — one with a new, hot, innovative product rather than a rehash of aging products[4].

Should be exciting either way.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

  1. AAPL:
  2. slashed its order for the 9.7-inch iPad LCD screens:
  3. release a lower-priced iPhone:
  4. rehash of aging products:

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