Wall Street Analysts Blame Apple Earnings Miss on Slow iPhone Release
October 19, 2011 2:29 PM
comment(s) - last by
Analysts say Apple should now be back on the fast track to success
Analysts -- for now -- are willing to give the perrenial performer Apple, Inc. (
) a pass for
poorer than expected earnings
. Apple traditionally has
surpassed analyst targets
for unit sales and its balance sheet. But in the recent quarter, while growing, it sold 3 million less iPhones and 2 million less iPads than
(i.e. it grew
For the most part analysts blamed the miss on a ripple-effect triggered by a slow iPhone 4S release (and perhaps, by proxy,
co-founder Steven P. Jobs' death
). They nearly unanimously predict Apple will get back on track this quarter.
Goldman Sachs suggests lowered expectations may result in bigger blowouts for Apple:
As consensus estimates are now likely to hug guidance more closely, we expect next quarter’s expectations to remain realistic and perhaps even conservative.
Sterne Agee analyst Shaw Wu remarks:
We are not proud modeling 18.5 million iPhones which turned out higher than actual 17 million shipments but we were materially below consensus of 20 million, not to mention some analysts who assumed as high as 23 million units. It turned out that a concern we raised in our earnings preview (see our 10/12/11 note) that consensus didn't factor in enough of a "product transition" that management talked about was valid (which turned out to be iPhone 4S launching in October).
Likewise Morningstar predicts a big fourth quarter, commenting:
We continue to believe that the capabilities of the new phone, a large base of existing customers ready for renewal, and new price points for existing phones have positioned Apple for tremendous success during the next quarter, which will be 14 weeks long instead of 13 (due to a quirk in Apple’s fiscal reporting calendar).
Bank of America-Merrill Lynch attributes the glitch to "pent-up demand" and suggests that the iPhone 4S will be a smash hit, writing:
Apple missed revenue and EPS due to an underestimated pause in iPhone sales ahead of the 4S launch. That said, we do not view this as a sign of softening iPhone demand. In our view, solid pent-up demand, combined with incremental unit sales from new carriers added in F1Q12 (Apple deferred the new carrier addition to F1Q12 because of the iPhone 4S launch) should drive a healthy rebound in iPhone sales. We remain buyers of the stock heading into perhaps the most successful product launch in company history, with the iPhone 4S.
Piper Jaffray analyst Gene Munster suggests that some customers are playing the waiting game, hoping to upgrade to an iPhone 5 next summer. But he says a more-bullish-than-usual earnings guidance from Apple for calendar Q4 2011 could point to a blowout quarter. He comments:
We see this as a disappointment, but given the strong start to iPhone 4S sales, we believe it is clear that units were pushed from the Sept. quarter into the Dec. quarter as customers waited for the "iPhone 5"... We believe Apple's Dec-11 quarter guidance is evidence of the company's confidence in iPhone 4S and iPad sales in the Dec-11 quarter.
Morgan Stanley's Katy Huberty was similarly bullish dismissing the miss as a "hiccup". She writes:
We believe the Street underestimated the degree to which September was a transitional quarter for the iPhone but with strong iPhone momentum out of the gate in October, we don’t see the light iPhone shipments as a cause for concern... [L]ower than expected uptick in iPad shipments was the only real "flaw" [in the quarter].
She predicts the company's stock to rise 14 percent within the next year, reaching around $480 USD/share.
II. Some Analysts are Less Cheerful
A few analysts reacted with a bit more pessimism. RBC Capital Markets analyst Mike Abramsky suggested Apple was going through a "transitional" state and suggests "strong catalysts ahead". Yet he suggests that Q4 earnings may miss Apple's guidance, unlike many of his colleagues. He predicts Apple to pull in $34B USD in revenue that quarter, versus the guidance of $37B USD.
Alex Gauna of JMP Securities, suggests that investors shouldn't be so quick to write off Apple's "hiccup". He comments:
Although we anticipate widespread dismissal of the miss as a product transition wrinkle rather than a trend, we view the blow to the company’s sterling track record as significant and caution investors that, 1) Apple remains a high cost/premium vendor in an economically-sensitive environment, 2) Android is growing share more rapidly owing to a lower cost structure and supports more open development, 3) the company has now had a second stumble right out of the box under new management (the first being the iPhone launch), and 4) the company has a high risk vertical approach to many of its products.
We advise not being too quick to dismiss the iPhone miss on product transition issues, as we believe this is going to be a recurring theme for Apple given the limited scope of variety it offers in the handset and tablet categories. We would also have expected this effect to be more muted in overseas markets that are newer adopters of the devices and the majority driver of Apple growth.
Early reads on iPhone 4S sales are truly impressive, but the device is not so dramatic a departure from the prior generation iPhone 4 as to give us confidence that this device can usher back in sales reacceleration. We continue to expect a 4G iPad refresh to arrive before a 4G iPhone in 2012, although little color has emerged regarding what will make them special beyond being 4G.
The implications of an Apple miss means more than is typical, given the importance of its aura of brilliance in sustaining premium price points and product loyalty. This will likely also add to wellplaced investor anxiety around how the company sustains its momentum under new leadership.
Similarly Collin Gillis of BGC Partners rained on the pro-Apple parade issuing a rare downgrade to Apple's stock. He explains:
We no longer suggest being overweight shares of AAPL and see that near-term downside risk overweighs upside reward. Shares have gained 14% since October 7, and increased 31% year-to-date. With the largest market capitalization for a U.S based company at $391 billion, any hiccup in its growth is likely to provide an opportunity to add to positions at a better price.
The company has to constantly set records just to meet expectations. There is nothing wrong with Apple’s business model or execution, but we do see that sentiment is overwhelmingly positive and shares are within 7% of our $450 price target. We believe that it is possible shares pullback below $400, possibly even this week after the earnings report on Tuesday post-market, and we would seek to be buyers at levels below $400. While there is a sea of love in the press for Apple currently, we voice the following notes of caution:
1) Impact of the pending launch of the iPhone 4S on sales in the Sep. quarter. Consensus estimates of 20 million phones sold may prove difficult to exceed given the launch of the 4S phone in the December quarter. While the company did an excellent job at delaying any discussion of a new phone until after the quarter ended, it is worth recalling that this September results have a phone that was at the end of its refresh cycle, not the start of a new one – as has been the case in September quarters in the years past.
2) Education discounts. September quarter margins also run a risk from impact due to education pricing discounts. Cost of revenue last year in the September quarter increased notably from 60.9% to 63.1% sequentially. While this was also driven by the launch of the iPhone4, it is worth mentioning that the September quarter does contain the most impact to margins from educational buying.
3) iPads. Our largest concern is centered around tablets, however. There is limited history of how seasonality and product refresh is going to impact sales of iPads, and consensus estimates of 11.5 million units sold assumes another record shattering. As the iPad is Apple’s second most meaningful revenue stream after the iPhone, if the company does not continue to set mindblowing records (iPads sales account for over 10% of worldwide PC sales just five quarters after launch) it is going to be difficult for the other parts of the business to cover the gap.
Finally, low-cost tablets from competitors willing to lose profit to gain market share are going to incrementally hurt sales of the iPad in our opinion.
Investors reacted in a similar bearish fashion depressing the stock $20 or more in trading today (~4.5-5 percent).
Apple is currently grappling with
a leadership transition
and preparing the iPhone 5. To launch next summer, the iPhone 5 is rumored to be the last major project Steve Jobs directed. The device is expected to be a major overhaul of the popular smartphone design.
This article is over a month old, voting and posting comments is disabled
RE: Die investors
10/19/2011 3:57:08 PM
Its as if the Analysts are planting a story to be able to short the stock in case it doesn't live up the the 10 fold profit they like to forcast that isn't possible. ;)
"A lot of people pay zero for the cellphone ... That's what it's worth." -- Apple Chief Operating Officer Timothy Cook
Apple Announces Record Q4 Earnings, Investors Aren't Impressed
October 18, 2011, 4:51 PM
IPhone 4S Restores Investors' Faith in Apple's 2011 Quarterly Earnings
October 18, 2011, 8:46 AM
"Apple's chief A-hole" Forstall Keeps Steve Jobs Executive Legacy Alive
October 13, 2011, 6:30 PM
Apple Co-founder and Former CEO Steve Jobs Dead at Age 56
October 5, 2011, 7:51 PM
Apple Announces Another Blowout Quarter, 18.65M iPhones Sold During Fiscal Q2
April 20, 2011, 5:32 PM
HTC J Butterfly Announced by Japan's KDDI, Packs LTE-A Carrier Aggregation
July 31, 2014, 2:34 PM
T-Mobile Subscriber Numbers Surpass 50 Million, Sees Q2 Profit of $391M
July 31, 2014, 12:24 PM
Verizon Wireless Launches 5.7", 960x540 LG G Vista Smartphone for $400 Off Contract
July 31, 2014, 11:02 AM
Mini-Me: Xperia Z3's Petite Companion, Xperia Z3 Mini Leaks
July 31, 2014, 9:40 AM
Samsung Reports Lower Smartphone Sales, Operating Profit Falls 25% YoY
July 31, 2014, 8:55 AM
Xbox One's Release Date in China Set for September 23
July 30, 2014, 1:15 PM
Most Popular Articles
Facebook Will Force Android, iOS Users to Use Messenger App This Week
July 29, 2014, 11:26 AM
Sony's Xperia Z3 Gets Detailed in Leaked Photos
July 25, 2014, 2:30 PM
Ford's Extensive Use of Aluminum in '15 F-150 Results in $395 Increase for Base Models
July 28, 2014, 3:02 PM
Pentagon's Priciest Project, F-35, Misses International Debut
July 25, 2014, 10:18 AM
T-Mobile CEO John Legere is on the Warpath Again; Introduces $100, 10GB Family Plan
July 28, 2014, 10:12 AM
Latest Blog Posts
Space Terrorism is a Looming Threat For the United States
Apr 23, 2014, 7:47 PM
Facebook Aims to Provide Internet to "Every Person in the World" with Drones, Satellites
Apr 1, 2014, 10:20 AM
Retail Mobile Sites Experience Outages in Light of Simplexity's Bankruptcy
Mar 14, 2014, 8:48 AM
Tesla vs. BMW: Who Has the Safer EV?
Feb 1, 2014, 2:56 PM
Justice Leaks Details of Next HTC One Two Flagship Phone
Dec 5, 2013, 4:04 PM
More Blog Posts
Copyright 2014 DailyTech LLC. -
Terms, Conditions & Privacy Information