(By Mani) Apple Inc. (NASDAQ:AAPL) earnings are expected to be in line with estimates when it reports fourth quarter results on Oct. 25.
However, the focus will be on the outlook for the fiscal 2013 first quarter that ends in December. That period will have full quarter sales of iPhone 5 and the potential iPad Mini.
"For the December quarter, we believe the revenue outlook will be very conservative owing to iPhone 5 supply constraints and guidance will be materially below our consensus estimates," BMO Capital Markets analyst Keith Bachman wrote in a note to clients.
Apple generally provides a cautious outlook, though guidance for the December 2011 quarter was better than expected on the back of the iPhone 4S rollout. The iPhone 4S was available in mid October of 2011, and Apple guided revenue to increase approximately 31 percent quarter-over-quarter in the fourth quarter of 2011, which included a fourteenth week.
However, this year, Apple is experiencing supply constraints related to iPhone 5, thereby making it difficult to cater to the huge demand. So, it is possible that Apple may guide first quarter below the Street view.
"Although the iPhone 5 rollout is scheduled to be more aggressive than the iPhone 4S, we believe supply for the iPhone 5 remains tight. Hence, we believe supply constraints will cause guidance to be conservative and materially below consensus estimates for the December quarter," Bachman noted.
If revenue outlook for the December quarter is similar to that of last year, Apple could guide 25 percent quarter-over-quarter growth, after normalizing the fourteenth week and taking into account supply issues.
"Hence, if Apple reports September quarter revenue of $36 billion, then we would envision Apple guiding December quarter revenue of around $45 billion, compared with our new $54.0 billion estimate and consensus of $54.8 billion," said Bachman, who sees Apple guiding first quarter revenue in the range of $45 billion to $48 billion.
"If we are right on our assumptions on revenue guidance, this suggests that Apple could guide EPS in the $12 to $13 per share range, compared with current Street estimates of $15.41," he added.
In any case, Apple's first-quarter guidance will be materially below current consensus estimates. Although investors generally understand that Apple provides conservative guidance, the potentially wide gap between December quarter forecast and sell-side estimates could be another factor contributing to the weak stock performance in the near term.
"We would advise clients to buy off weakness based on the guidance. We note that Apple's actual revenue results for the December 2011 quarter were 25% higher than guidance, or $9 billion," Bachman noted.
For the fourth quarter, Wall Street expects Cupertino, California-based Apple to earn $8.84 a share, according to analysts polled by Thomson Reuters. The consensus estimate represents growth of 25 percent from last year, but a 5 percent decrease from the third quarter of 2012.
During the past three months, the average estimate moved down from $8.62 a share, and, in the preceding four quarters, Apple's earnings managed to beat the Street's view twice and missed them two times.
Quarterly revenue is expected to increase 28 percent to $36.19 billion from $28.27 billion in the same quarter last year. The company has averaged year-over-year revenue growth of 48 percent in the past four quarters.
For the fourth fiscal quarter, Apple expects earnings of about $7.65 a share on revenue of about $34 billion.
"We believe Apple will report September Q results at around our consensus estimates, but the near-term focus will be on the December quarter, given recent product launches," Bachman added.
In the third quarter, Apple reported earnings of $8.8 billion, or $9.32 per diluted share, higher than $7.3 billion, or $7.79 per diluted share, in the year-ago quarter. Revenue surged to $35.0 billion from $28.6 billion last year.
Gross margin came in at 42.8 percent compared with 41.7 percent in the year-ago quarter. iPhone sales rose 28 percent to 26 million, and iPad sales surged 84 percent to 17.0 million. The company sold 4.0 million Macs during the quarter, a two percent unit increase over the year-ago quarter.