The iTones they are a-changin’

UPDATE 9.30pm GMT Apple stock closed down 12.35% at $450.50 almost at its days low. It is now down by some 36% from its closing high reached on September 19 last year of $702.10. In after hours trading it has gone below $450.

For both Quarters 1 and 4 of  2012 the opening Apple conference call statements were made by Peter Oppenheimer (CFO). Yesterday’s call was introduced by Tim Cook (CEO).

His opening intro “Thanks, Nancy, and good afternoon everyone and thank you for joining us…” was not delivered, we felt, with the usual gusto which certainly we have come to expect from him as evidenced at many of the recent product announcements.

We had grown rather fond of the exaggerated southern/Alabamian drawl typically saying “ Good Morning everyone ……”

As we have already commented certain costs and revenues have been reallocated by Apple resulting in a restatement redrawing of their historic financials.

Many of the initial headlines and comment on their results indicate a shortfall against market (the professionals) expectations for their Q1 earnings. We disagree they were we reckon remarkably close. Actuals v’s (expectations) were :

  • Revenue billions $54.5 ($54.7)
  • Gross margin 38.6% (38.3%)
  • Earnings per share $13.87 ($13.45)
  • iPhone units millions 47.9 (48.0)
  • iPad unit mns 22.9 (23.0)
  • Mac unit mns 4.1 (5.3)
  • iPod unit mns 12.7 (12.0)

BUT historically Apple have in general exceeded expectations as shown in Philip Elmer-DeWitt’s revealing graphs above.

Incidentally his take on the results is “Apple burned by analysts’ overheated expectations

BUT, and we think it’s the biggest BUT of all, the major change is to the way Apple are now giving their guidance for future results and their context.

Historically their guidance has been Über conservative and its worth showing the transcript for a little exchange during yesterdays call between Peter Oppenheimer and Tony Sacconaghi of Sanford Bernstein (courtesy Yahoo)

“Sacconaghi – I just wanted to make sure that I fully understand your comments about a guidance in the new guidance range that you’re providing. Are you effectively saying that when you provided guidance before it was uniquely conservatively and that level of conservatism no longer exists? We’re actually getting the real planning range for Apple and that this is fundamentally different from how you approached and provided guidance.

Oppenheimer – Tony it’s Peter. In the past we’ve provided a single point estimate of guidance, it was conservative then we had reasonable confidence in achieving. This quarter and going forward we’re going to provide a range of guidance that we believe that we’re likely to report within, no guarantees, forecasting is difficult but we believe that we will report within that range.

Sacconaghi – I’m just comparing the word, so you think you’ll report in the range before you I think on average eclipsed your guidance by on EPS by 35%, was the guidance before something that you felt reasonably confident in achieving or was there an implicit buffer in there because I’m trying to reconcile the fact that you said you thought it was reasonable before but your historical percent it was, you eclipsed it enormously on an ongoing basis and this time you’re saying there is a high likelihood of falling within the range and I want to understand the distinction.

Oppenheimer – I will go through it again, in the past we gave you a single point estimate of guidance, it was conservative that we had reasonable confidence as you can have that we would achieve. We’re now providing you a range of guidance that we expect to as best we can report within.”

So our interpretation is no more Über conservatism!

Our table shows our calculation of the range of Earnings per share E & O E again (it differs from last nights instant version as we’ve revised the shares used per their filings).

Apple guidance Q2 2013
High Low
Revenue $ billion 41-43 43 41
Gross margin % 37.5-38.5 38.5 37.5
OpEx $ billion 3.8-3.9 3.8 3.9
Other O/I $ million 350 350 350
Tax rate % 26 26 26
Earnings per share $ n/a 10.24 9.24

2012 quarter 2 EPS actual was $12.30 At a mid point of the above of $9.74 this would be a reduction, or negative growth, of some 21%. Hmm

The only Bob Dylan video of his classic  we could find is a White House performance!

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