Apple Inc. (AAPL) Down 10%: Munster Defends, Gundlach Says $300

Apple Inc. (NASDAQ:AAPL) reported fiscal 1Q13 EPS (December quarter) of $13.81, which was above consensus of $13.48 and above Apple’s original guidance of $11.75. The beat was largely due to lower-than-expected operating expenses and modestly higher revenue than expected. Revenue of $54.5 billion beat estimates by about $500 million due to slight upside on iPhones and iPads. Investors are not happy with the results, and shares are down 10% in after hours trading.

However, many investors likely desired a few more millions of upside in iPhones. It was downside in Macs that was the real surprise – contributing to a $1.3 billion shortfall, likely due in part to iMac shortages. Analysts at Barclay believe that some of this Mac revenue is pushed into the March quarter. Gross margin of 38.6% was slightly above consensus of 38.4% likely due to mix.  iPhone shipments were 47.8 million slightly under consensus of 48.3 million. iPad shipments were 22.9 million,  slightly below consensus estimates of 23.2 million.

For fiscal 2Q13 (C1Q) Apple Inc. (NASDAQ:AAPL) expects revenue of about $41-$43 billion vs. current consensus of $45.6 billion – representing a sequential decrease of 22%. Apple Inc. (NASDAQ:AAPL) guided for gross margins between 37.5-38.5%, operating expenses of $3.8-3.9 billion, other income of $350 million, and a tax rate of 26%.  Given AAPL usually guides gross margin a few points lower than what is actually reported –  gross margin outlook points toward a 39-40% future, which is positive. However, the overall revenue and EPS outlook and its implications for iPhones may give investors some pause.

At first blush, it seems that AAPL’s F2Q guidance revenue and EPS guidance is conservative – just like the December quarter’s guidance of $52B of revenue and $11.25 in EPS was, though  it is unlikely to alleviate all concerns over iPhones.  The key topics addressed on Apple’s conference call include sales trends of the iPhone 5, demand in China and emerging markets, the puts and takes on gross margin, the iPad mini cannibalization rate, channel inventory levels for all products, competition with the low end device market, opportunities for a large screen phone, and what AAPL is doing to expand its opportunity in Web Services. There are concerns about iPhone 5 momentum into March. Shares can benefit from new iPhone and iPad products slated for the June quarter and believe that the March quarter likely represents the bottom for y/y EPS growth for the year. Barclays analysts believe that new services are set to be released in iOS 7, which is an increasingly important upgrade given issues with Maps in iOS 6.

Pipper Jaffray’s Gene Munster, who is one of the biggest AAPL bulls, is still positive about the company. He notes:

While iPhone numbers were mildly disappointing, our initial look at Apple’s December quarter results does not sway our long term confidence in the iOS ecosystem. The December iPhone number, which we believe is the most important number for the company, came in at 47.8 million compared to the 50 million buy side bogey we talked about in our previous note. For March, the company guided to $41-43 billion in revenue compared to our expectation for a $41 billion guide. Net-net, while we believe the iPhone number may appear disappointing, the slightly better guide implies that investors may not need to continue to worry about noise regarding continued iPhone build decreases for March.

Analysts at Mizuho securities note:

Apple’s results were largely in-line with consensus. AAPL reported inline results for iPhones and iPads and its Mac units significantly underperformed the PC market. Lack of upside to iPhones was disappointing as well as management’s gross margin outlook, which indicates that the shift to lower margin products will continue to weigh on Apple’s results in the near term.

Analysts at Jefferies note:

FQ1 (Dec) GM, and EPS exceeded consensus but fell short of our estimates. In particular iPhone shipments of 47.8M (JEF 53M, St 48.3M) were disappointing. Typically conservative revenue and GM guidance was better than many feared for, though implied EPS may be a bit light.

AAPL  is covered by 68 firms according to Reuters, and many firms have not issued reports yet. However, bond guru, Jeff Gundlach, who has been short AAPL for some time has. Gundlach placed a price target of $425 on shares of the tech giant. On CNBC today Gundlach said shares could go as low as $300 (H/T Julia La Roche)

Disclosure: No position