Tuesday, July 23, 2013

What To Expect From Apple's June Quarter Earnings

Apple Apple reports its June quarter results after the market close tonight and Wall Street is looking for the company to deliver earnings of $7.31 per share on revenues of $35.09 billion. That consensus expectation is derived from the 48 or so analysts that follow Apple shares. Now, as I tell subscribers to my investment newsletter PowerTrend Profits, context is key.


First, the consensus earnings range spans from a low of $6.64 per share to a high of $8.22 on top line expectations from $32.84 billion on the low end to $38.24 billion on the high end. Second, expectations for Apple's June quarter earnings call for a sequential decline and that has been what's been pressure Apple shares. Even though those shares are well off their 52-week low, there are even more off their 52-week high of just over $705.


What's powering the expectations of a sequential earnings decline is also powering the drop in the share price - a lack of new products and concerns over the health of the smartphone market. It's no secret that Apple has not introduced a new killer product category since the iPad. Yes, they've introduced newer iPad models as well as iPhones, but no new product category. There has been no shortage of rumors touting potential new iterations - smaller iPhone, larger iPhones, larger iPads - and new products, such as the much-rumored iWatch. Thus far, however, we have yet to see any such announcements and odds are we won't until Apple CEO Tim Cook takes the wrapping paper off of iOS 7.


Smartphone growth slowing, but the device remains key. Between now and then, we will have to wait. Sometimes, waiting is not easy and that is particularly true when Samsung Electronics , HTC , Blackberry (formerly known as Research in Motion), Nokia and others are dropping smartphone bombs. Even on the tablet side of things, Microsoft 's $900 million write down for its Surface tablet did little to help the tech sector. Weaker than expected results from both Research in Motion and Nokia aside, Google 's Motorola Mobility business continued to be a drag on Google's overall profitability. Despite those continued losses at Motorola Mobility - $470 million or so in the first half of 2013 - Google is expected to spend $500 million to market the upcoming Motorola X, the first product to be jointly developed by the Google-Motorola union.


That marketing blitz will likely keep the Motorola Mobility business in the red near-term, but such an effort tells us that even though the growth rate of the smartphone market may be slowing, the smartphone remains a key market for what I call the Always On, Always Connected society. Whether its connecting with family and friends via Facebook , Google+ or Instagram, or shopping all the third party research from companies like comScore point to the continued shift toward mobile devices and away from the desktop. Even as Google-Motorola get ready to launch the Motorola X, one has to wonder if it is setting its sights on the tablet market. We're still far earlier in the tablet market than the smartphone one and Motorola did have several tablet models. Does anyone remember the Motorola Xoom tablet?


Tablets tablets tablets. Because the iPhone is the largest component of Apple's revenue stream (52.6% of March quarter revenues), many will be watching to see how Apple's iPhone sales performed in the quarter. More specifically, they' be seeing how June quarter shipments compare to the 37.4 million units it shipped in the March quarter. Candidly, I'm expecting some sequential decline at the business. The area that I plan to focus on more is the iPad business. Apple shipped 19.5 million iPads in the March quarter and with PC sales under pressure it looks like tablets are continuing to gain share. While the smartphone space is getting far more competitive, Apple continues to have a strong position in the tablet space.


While we wait for the next new-new thing from Tim Cook, Jony Ive and crew, one has to wonder how long until Apple is truly challenged in the tablet market, much the way it was eventually taken to task in the smartphone one. In terms of guidance, Apple tends to share little and that means turning to some of its key suppliers, such as Qualcomm and Cirrus Logic , which will report their quarterly results on July 24 and July 25, respectively.


Summer's exit to bring more product rumors. In several weeks as we exit summer, odds are the rumor mill will once again crank out speculation on what the next Apple product could be. We know that other players like Sony and Microsoft are working on their own wearable products, but this week we learned that following a number of high-level departures HTC has created an "emerging devices" division. Exactly what this may bring we will see over time, but given its drop to 9th place in the global smartphone market, HTC will need to go big if it hopes to mount a comeback.


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