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Apple's First-Quarter Earnings Preview: Dissecting the Estimates


This week, it's time to look at the numbers.

Last week, in the column Revisiting Apple's Stock, I offered a few thoughts on Apple (NASDAQ:AAPL) and a model of the company's upcoming earnings for the first quarter of 2013 (due on January 22, 2013). I also stated that I would try to go under the hood and defend my numbers. So let's get into the meat of it all and provide further detail to the numbers in the Apple earnings estimates preview.

There are really two tasks at hand, one easy and one more difficult. The easy part is modeling iMac, iTunes, SG&A, shares outstanding, etc. These numbers do not have wild swings and are fairly easy to predict. While they represent a significant part of the models, their overall effect on EPS remains steady and less influential.

The more difficult task is to gauge the overall iPhone, iPad, and gross margin figures. These three factors (and corresponding average sales price, or ASP) are at the heart of financial models for Apple and quite difficult to anticipate. Yet these numbers are also at the heart of the Apple chase and frequently monitored, covered, and reported (see, for instance, Forbes coverage of analysts covering Apple and the accuracy of their projections).

Please note that despite my best attempt, and a fair amount of time spent, I have been unable to find "whisper numbers" for the upcoming Apple earnings estimates. I have found some individual articles covering expectations of analysts, but I could not find a synthesized table such as the one linked above. Not yet, at least.

So, for the time being, I am on my own!!

Let's quickly go over the "easier" stuff.

1. Desktop and laptops: 4.92MM were sold in Q4, and there has been a 15% QoQ seasonal increase in laptop sales and some strong YoY historical patterns, along with a gently descending ASP.

Considering the release of new MacBooks and iMacs and an overly robust Thanksgiving season, coupled with the anticipation of a strong Christmas season, I tabled on 5.26MM units. I actually believe my number to be slightly too conservative and it could surprise a little on the upside.

2. iPods: These might actually spike a bit due to seasonal holiday shopping, but pricing is eroding. I am retouching these figures a touch, but again, the effect is minimal.

3. iTunes, hardware, software: There may be some spikes here (thanks to gift cards for holidays, change in the charger gadgets for the new iPhone, etc.) but again, the effect is minimal.

4. SG&A, diluted shares, tax rates: These numbers are pretty easy to extrapolate from historical patterns and will not considerably affect the financial projections.
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