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Apple Inc. (AAPL) Q1 Earnings Preview: Margin Pressure To Dull A Solid Quarter?

 January 22, 2013 02:20 PM

(By Rich Bieglmeier) Apple Inc. (AAPL) is expected to report earnings after the market closes on Wednesday, January 23, 2013. Wall Street anticipates that AAPL will earn $13.42 for its fiscal 2013 1st quarter. iStock expects the tech monster will report earnings that will exceed Wall Street's consensus number. The iEstimate is $13.53 – an 11 cent upside surprise. For the first quarter of 2012, AAPL smoked forecasts by 36.50%.

Apple is an iconic company that makes leading edge smartphones, tablets and computers, along with selling content for use within its ecosystem.

Quarterly profit checkups were a foregone conclusion, APPL will beat the consensus, and the only question was by how much. The NASDAQ 100 member topped Wall Street's best guesses by an average of 47.87% for 11 quarters in a row. That changed October 2011 when EPS came in less than expected. In fact, Apple's earnings per share have stumbled for the last two quarters and three of the last five. In each disappointing case, the stock lost ground in the days surrounding the announcement dropping 4.7%, 4.7%, and 3.8%, from last quarter back.

[Related -Apple Inc. (AAPL): iPhone Trending into Another Carl Icahn Disappointment?]

Wall Street has been all over the place for Apple's smartphone sales for Q1, iStock has seen estimates ranging from 40 million units to more than 52 million. Verizon Communications Inc.'s (VZ) earnings, released Tuesday morning, may have shed some light on what to expect. According to VZ, the cell provider sold 6.2 million iPhones, which was better than expected; however, Verizon's CEO suggested that only half were iPhone 5s, meaning the other half was lower margin and cost iPhone 4 & 4s.

[Related -Fusion-IO, Inc. (FIO): Can Fusion-IO Q2 Results Cheer Street?]

According to Google Trends, searches for iPhone fell 6% during October through December 2012 versus 2011 while iPhone 4 and 4s dipped dramatically, contradicting VZ's CFO's statement.

If the Verizon trend holds, in the USA anyway, sales figures could be up, but profits and margins getting squeezed.

Next up on the watch-list will be tablet sales and to what degree iPad mini cannibalized iPad sales, where we could see a similar trend, buyers choosing the lower margin iPad mini over the larger iPad enough to depress margins despite higher volume. For Q4, analysts estimate that tablet sales are expected to jump, big time; however, Morgan Stanley says Apple's share will remain at 50% of the US market, and Citibank analyst Glen Yeung believes iPad mini sales could account for up to 50% of the current quarter's sales.

With that in mind, iStock expects to see iPads deliver strong growth, and take up more of Apple's revenue pie. The danger is that iPad mini dominates iPad sales and cuts profit margins.

iStock expects to see a robust holiday quarter from Apple Inc. (AAPL) led by tablet sales. We will be watching Apple's profit margins closely, and so will Wall Street. If iPhone 5 lags - as suggested by today's Verizon announcement - and iPad mini steals from iPad, trouble could be lurking for Q2.

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1/22/2013 6:53:38 PM
Don't get fooled again by Right
tech monster? apple is a value added retailer that buys all its tech from samsung, LG, sony, intel etc. When will people realize that the media lies to them to steal their investment money for the israelites running the show
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