Apple Inc. (AAPL) When The Party Ends, Everyone Rushes to Leave

Apple Inc. (NASDAQ:AAPL) reported record revenue of $54.5B for the quarter that exceeded company guidance of $52B and estimates of $54.7B. Revenue grew 17.7% YoY and 51.6% sequentially. Earnings of $13.81 exceeded guidance of $11.75 and consensus estimate of $13.34, and represented decline of 0.5% YoY. Net income was $13B (+0.1% YoY), gross margin was 38.6% and operating margin was 31.6%. Apple Inc. (NASDAQ:AAPL) declared a cash dividend of $2.65 per common share.

BGC is out with a new report titled ‘ When the party ends, everyone rushes to leave, without saying thanks’, based on a Haiku. BGC notes that the reset of expectations for AAPL should be positive over the longer term. BGC breaks down the earnings, which we summarize below:

iPhone

While the company sold a record 47.7M (+29% YoY) units in the quarter, the number did not break the 50 million units that BGC viewed was needed to be a positive catalyst to the stock. iPhone and related products contributed $30.6B (+28% YoY, +84.2% QoQ) in revenue. ASP was $642. December quarter ended with about 10.6M iPhones in channel inventory (sequential increase of 1.5M units). They do not expect a channel inventory build to help the March quarter. Historical channel inventory for the iPhone for the last four quarters is as follows: December quarter: ~6M units (increase of 200,000), March quarter: 5.75M units (decline of 180,000), June quarter: 5.9M units (increase of 700,000), September quarter: 9.1M units (increase of 800,000), December quarter 10.6M units (increase of 1.5M).

Macintosh

Apple Inc. (NASDAQ:AAPL) sold 4.0M (-21.9% YoY) Macs during the quarter and compared to 6.4% YoY decline in the PC market according to IDC. Mac sales contributed $5.5B (- 16.4% YoY, -16.6% QoQ) in revenue or 10.1% of total. Channel inventory at the end of December quarter was 3-4 weeks. ASP was $1359.

iPad

iPad contributed $10.6B (+21.7% YoY, +49.6% QoQ) in revenue. Units sold were 22.8M (+48.1% YoY). The December quarter ended with 3.4M Pads in channel inventory. ASP was $467.

iPod

iPod contributed $2.1B (-15.2% YoY, +161.3% QoQ) in revenue. Units sold were 12.6M (-17.7% YoY). ASP was $169.

Revenue

Revenue from new operating segment Greater China which includes Mainland China, Hong Kong and Taiwan was $7.3B (+60% YoY). Retail Revenue was $6.4B (+18% YoY) and average revenue per store was $16.3M.

Guidance

Company guidance for the March quarter is $41-$43B in revenue, gross margin of 37.5-38.5%, tax rate to be 26%, other income/(expense) of $350M and operating expense of $3.8-$3.9B. The company indicated a change in its stance regarding
guidance, by providing a range that the company expects its results should land in, as opposed to a baseline that could be exceeded. While this caused a reset in expectations, driving the selling pressure, longer term the result has reduced expectations of ‘monster upside’ from AAPL may help reduce volatility around earnings.

March Quarter Estimates

BGC estimates revenue of $43.3B is growth of 10.5% YoY, and EPS estimates of $10.42, compared to $12.30 in the prior year. The analysts estimate gross margins at 38.8% and they expect 39 million iPhones, 18 million iPads, and 4.3 million Macs sold.

Balance Sheet

AAPL has $137.1B in cash ($144.7 / share) and no long term debt as of December 31, 2012. The company generated $23.4B in cash from operations in the December quarter. Cash grew by $15.8B in the December quarter from $121.2B on September 30, 2012 to $137.1B on December 31, 2012.

Forecast

BGC has adjusted their FY13 estimates and trim their price target to $550 from $575. They are more positive on shares of AAPL at these levels, but without clear visibility on new revenue streams they expect AAPL to perform relatively inline with the major indexes near-term and maintain a HOLD rating.