Although investors voiced some disappointment that Apple’s quarterly financial picture didn’t match some expectations, analysts Tuesday weighed in with a more optimism. The key phrase: the best is yet to come.
“We believe [the] iPad supply chain will expand substantially into the calendar fourth quarter,” Sterne Agee analyst Vijay Rakesh told investors this morning. Although Apple’s sales of 4.2 million iPads this quarter was below the 5 million Wall Street expected, the analyst views the lower number as a “strategic decision to allocate capacity to [the] iPhone 4 and the best is yet to come.”
Oppenheimer analyst Yair Reiner highlighted the problem with too much investor anticipation leading up to the revenue report. “Disappointment, thy name is expectation,” he said. Apple’s $20.93 billion revenue “came almost exclusively on the strength of the iPhone 4,” according to Reiner.
“Notwithstanding the short-term vicissitudes of the expectations game, Apple clearly has a winner on its hands,” Reiner remarked about the iPad’s future. The December quarter will be boosted by having Walmart, Target, AT&T and Verizon on board, as well as increasing international sales beyond the current 27-countries.
Reiner expects Apple will report $24.2 billion in first-quarter 2011 revenue, higher than the $23 billion forecast by Rakesh.
Piper Jaffray Gene Munster, who before Apple’s report warned shortages of the iPad and iPhone 4 could dampen the quarterly revenue picture, now says if Apple had sufficient inventory, the Cupertino, Calif. company could have sold 15.5 million to 16 million iPhones, rather than 14.1 million.
Apple’s Mac sales will grow 15 percent to 20 percent in fiscall 2011, with a Verizon iPhone adding another $2 billion each quarter to the Cupertino’s bottom-line, according to the analyst. Such a forecast may be why Piper Jaffray raised its price target on Apple stock to $429, up from $390.
Another Apple-watcher, JP Morgan’s Mark Moskowitz, noted any fall-out from Monday’s numbers would be a “phenomenon” that will “pass quickly.” He described investors’ expectations as “elevated” and that wider iPad distribution should mean stronger sales. Like Rakesh, Moskowitz is optimistic about the iPhone. Demand for the handset is “likely just getting started,” the analyst said.
Morgan Stanley’s Katy Huberty brought perspective to what some investors felt were lower-than-expected margins on iPhone sales. Along with production not meeting demand, Huberty said the free iPhone 4 bumper program “hit iPhone gross margins sequentially.” Despite the lower margins, the iPhone 4 “maintains a gross margin profile well above corporate average,” the analyst adds.
Apple should have the wind at its back in future quarters, giving rise to Huberty’s prediction of iPhone margins in the “low 50 percent range.” Like other analysts, she raised her price target for Apple stock to $375, up from $346.
Analyst Charlie Wolf of Needham & Company, saw another lesson in Monday’s revenue announcement. It took iPad sales just two quarters to overtake Mac shipments.
Probably the best picture of the dangers inherit in getting too caught up in expectations came from Gleacher & Company analyst Brian Marshall. Investors who hit the “sell” button immediately after hearing some Apple sales didn’t meet expectations are “getting caught up in the details and tied around the axle.”
