The question is will anything that Apple (APPL) announced today make investors happy?
My first take is No. With a big part of that answer resting on the company’s cut in projections for the fiscal third quarter that ends in June. So far after-hours trading isn’t providing much of a hint, so we’ll have to wait for tomorrow. The stock showed a quick bounce to $429 before settling back near $403.
But you judge. Read more
Apple (AAPL) doesn’t report earnings until April 23—which has put Wall Street analysts and investors deep into reading the tealeaves mode.
Yesterday’s leaves come from Cirrus Logic (CRUS), a supplier of audio chips for the iPhone and iPad. On Tuesday, Cirrus Logic reported that it would take an inventory reserve charge of $23.3 million in its fiscal fourth quarter, which ended in March. The bulk of that–$20.7 million—comes from a single, unnamed, high-volume customer. Since Apple accounts for 90% of revenue at Cirrus, everyone on Wall Street assumes that the customer in question is Apple. It looks like Apple switched to a newer product from Cirrus during the quarter and that Cirrus got stuck with extra inventory
But what’s it all mean? All the interpretations I’ve seen today are negative.
For example, some analysts have argued that Cirrus got stuck with extra inventory of the older chip after the switch because sales of iPhones and iPads had fallen below projections.
Another set of comments has argued that the timing of this announcement from Cirrus Logic suggests that Apple’s next refresh of its iPad product line is behind schedule. In 2012 Apple refreshed the iPad in April.
And I should probably add a leaf or two from China where a relatively low-visibility story in the People’s Daily criticized Apple for selling pornographic applications among the applications for the iPhone. As far as I can determine the charge isn’t true, but it is a haunting echo of the charges leveled at Google (GOOG) when it was driven out of the Chinese market.
The upshot is that Apple, which closed Tuesday at $426.24, closed yesterday at $402.80, down another 5.5%, as the shares broke below important technical support and challenging the psychologically important $400 level, and then broke through that level to $390.89 today as of 3:30 p.m. New York time.
The consensus on Wall Street is that Apple will report a disappointing quarter on April 23. Credit Suisse, for example, forecasts that Apple revenue will fall by 21% from the December quarter and climb just 10% year over year. Margins are expected to tumble and iPhone sales will be weak since it doesn’t look like Apple will refresh its phone lineup until the middle of the year.
Frankly that seems to be about right—as far as it goes. Apple and Samsung are engaged in a game of leapfrog with the company with the latest product release temporarily jumping ahead. Samsung’s Galaxy S4 is scheduled to go on sale next week and that will cut into Apple sales at the high end of the smart phone market.
For me disappointment over Apple’s April 23 earnings will mark the start of a buying opportunity in what has become a stock tied to product cycles. The April results will mark the likely bottom of that cycle and I’d be happy to get the next refresh of the iPad and iPhone at current share prices.
I’d just note that right now Apple trades at the same multiple as Dell. Apple’s forward price-to-earnings ratio is 9.18 (for the fiscal year that ends in September 2013) and Dell’s is 9.05 for the year that ends in January 2014. The PEG ratios (PE to earnings growth) are a bit different for the two stocks, however, with Apple selling at a PE that’s just 47% of its growth rate and Dell selling at 1.09 times its growth rate.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did own positions in Apple as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
Tomorrow, March 19, is the anniversary of Apple’s announcement re-instating a dividend after a 17-year hiatus. The anniversary has set Wall Street analysts into a dividend-predicting frenzy. Analysts surveyed by Bloomberg project that Apple will raise its quarterly dividend 56% to $4.14 a share. That would give the stock a 3.7% yield. That would be higher than the yield of 86% of the companies in the Standard & Poor’s 500 that pay dividends.
The logic among analysts seems to be no more complicated than Apple will raise its dividend because it can. The projected annual payout of $15.7 billion could be paid from existing cash flow, the argument goes, and Apple would not have to repatriate cash from overseas and trigger higher tax payments.
Other analysts have pointed out that Apple could easily sell debt to raise extra cash. Read more
Qualcomm earnings show why (now) it’s better to sell to Apple and Samsung than to be Apple and Samsung
When I added shares of Qualcomm (QCOM) to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ on October 10, 2012, I argued that the company’s keystone position in the wireless industry as a supplier to both Samsung and Apple (AAPL) made the stock a winner now matter which company came out ahead in the smartphone wars.
Yesterday, after both Apple and Samsung reported sales and earnings that disappointed the markets, Qualcomm reported an earnings and revenue beat and raised guidance for the next quarter based on just that positioning. Shipments of Qualcomm’s modem chips—sold to both Apple and Samsung (and other smartphone makers)–reached 182 million units, up 17% for the same quarter (the first quarter of the company’s fiscal year) of fiscal 2012. Sales of actual chips are only part of Qualcomm’s revenue stream. The company also makes money from collecting licensing fees when other manufacturers use its technology. (As the industry as a whole grows so do Qualcomm’s licensing revenues.) Licensing fees climbed 20% in the quarter.
Earnings for the company’s fiscal first quarter were $1.26 a share (excluding non-recurring items), 14 cents above the Wall Street consensus. Revenues at $6.02 billion, up 28.6% year over year, were slightly above the $5.9 billion consensus.
For the next quarter, the fiscal second quarter of 2013, Qualcomm told Wall Street it expects earnings per share of $1.10 to $1.18 (against an analyst consensus before the call of $1.10) and revenue of $5.8 to $6.3 (versus a Wall Street consensus of $5.89 billion.) For all of fiscal 2013 Qualcomm raised its earnings per share guidance to $4.25-$4.45 from its prior guidance of $4.12-$4.32. The Wall Street consensus was $4.32.
In the chip business you’re only as good as your next technology. Read more
So exactly why are Wall Street’s knickers in such a twist over Apple’s first quarter fiscal 2013 earnings reported yesterday?
Make no mistake—they are in a twist. The stock closed down $63.51 a share today. That’s a lot even for a $500 a share stock. The loss amounted to a drop of 12.4% for the day.
No year-to-year earnings growth in the quarter. Apple reported earnings for the quarter of $13.81. Although that was 26 cents a share better than the Wall Street consensus, it was still below the $14.03 a share the company reported in the first quarter of fiscal 2012 back in January 2012.
Lowered guidance for the second quarter of fiscal 2013. The company told Wall Street to expect revenue for the quarter of $41 billion to $43 billion against the $45.94 billion Wall Street consensus. Gross margin for the quarter would be 37.5% to 38.5% instead of the 40.5% Wall Street expects.
And most important of all, a lack of catalysts to make investors want to buy the stock.
Why do I call this “most important”? When a stock is as widely owned as Apple was (before the announcement,) a company needs to generate huge excitement to bring more money into the shares. Apple needed a Next Big Thing and instead what investors and analysts got was business as usual. Apple did sell a record 47.8 million iPhones in the quarter, but—ho hum—that was below recent analyst estimates of 48 million (which were indeed below estimates back in the fall of 50 million or 52 million.)
This lack of a Next Big Thing is indeed the common element in much of the analyst commentary today. Sure, the analyst reports worried about increased competition from Samsung and other makers of Android phones, or about supply chain shortages that cut into sales of Macintosh computers, or Apple’s failure to take more market share in China and India.
None of that would have mattered if Apple CEO Tim Cook had unleashed an Apple TV or something. Absent that, analysts were left with their worries and advice that just about begged Apple to behave like a regular company and sacrifice some of its extraordinary margins in order to build a cheaper phone or tablet so that the company could grab market share.
Absent either the Next Big Thing or Apple’s decision to become a regular company, many analysts said they can’t see Apple as a growth stock any more. The stock will start to climb again only after growth investors finish selling and value investors adopt the shares, more than one wrote.
Frankly, I think this is rubbish. Read more