Apple's recession report card arrives Wednesday

Correction: This post initially misstated Apple's revenue guidance for the quarter. The midpoint of the range was $7.8 billion.

Does Apple have one more earnings surprise up its sleeve?

This week will supply a telling sign of the tech industry's economic health. Intel hinted last week that the worst was over, while Google was more cautious. Now, all eyes will be on reports from a parade of tech bellwethers--including Microsoft, Yahoo, Amazon, and IBM--for signs that the tech economy is indeed on the road to recovery.

But Apple's earnings announcement Wednesday may be the most closely watched of the tech reports. So far, the company has shown a remarkable ability to navigate through the storms that have dinged virtually everyone else in this industry. Apple's stock is up 24 percent over the last month as investors anticipate another strong quarter from the company. Now the question is what's next.

Financial analysts are expecting Apple to record $7.9 billion in revenue for the period that ended in March, its second fiscal quarter, and earnings per share of $1.09. That compares with the company's own guidance for the quarter of $7.8 billion in revenue and earnings per share between 90 cents and $1.

If Apple matches the analyst estimates, it will have recorded a 6 percent increase in revenue and a 6 percent decline in earnings per share, proving that no one is recession proof. But as anyone who follows Apple's financial performance knows, the company is notorious for providing guidance way below the mainstream estimates, and then dramatically surpassing that guidance 90 days later.

Apple's new iMacs probably helped the company regain Mac momentum after a tough start to the year.

(Credit: Apple)

Will it pull off that trick one more time on Wednesday? Judging by what we've seen from its three major divisions over the last three months, Apple is likely to announce another quarter of solid results, combined with the fact that in January Apple Chief Operating Officer Tim Cook expressed a greater degree of confidence in the company's ability to see the future than he did in October. However, it might not be enough to satisfy a loud cabal of bloggers and day traders accustomed to watching Apple soar past estimates.

A breakdown of Apple's performance, sorted by product:

Mac
Apple is expected to have sold around 2.2 million Macs during the quarter, according to Piper Jaffray, which would be a slight decline compared to last year. It seems the March iMac refresh came too late in the quarter to offset poor Mac sales in January and February, and that combined with the weakness of the U.S. economy ensured that Apple lost market share in its best market for the first time in quite awhile.

Still, the numbers quoted by Piper Jaffray and IDC do not take into account online sales (Piper) or international sales (IDC). The Mac grew faster outside the U.S. during Apple's first fiscal quarter than it did inside the U.S., so it's possible that trend continued this quarter. And the market has also been flooded with low-cost Netbooks, a category Apple has declined to enter thus far.

iPod
The first quarter of the calendar year is usually a downer for the iPod group, coming off the holiday shopping season. Apple did launch a new iPod Shuffle model, and the overall iPod numbers (including average selling price) could provide some hint of whether consumers had any interest in the redesigned iPod Shuffle.

Did Apple's new iPod Shuffle have any impact on the iPod group last quarter?

(Credit: CNET)

At March's iPhone OS 3.0 event, Apple broke out iPod Touch sales for what appeared to be the first time, revealing that 13 million iPod Touches have been sold since that device was first introduced in September 2007. Apple has spent a ton of time and money evangelizing the iPod Touch as a gaming and entertainment platform, and investors will be watching for more signs that the company's attempts to move iPod users onto more profitable devices is working.

iPhone
The iPhone is an important barometer of Apple's profitability. Most of the talk around the iPhone over the past three months has centered on future models, with anticipation that Apple will launch a new piece of hardware alongside the debut of the iPhone 3.0 software later this summer. That's because other than the continued growth of the App Store, there wasn't really an event this past quarter that might have given iPhone sales a kick.

Piper Jaffray expects anywhere from 3.7 million to 4.4 million iPhones to have made their way to customers during the past quarter. That's down from the holiday season quarter, but that's not entirely unexpected as the iPhone settles into seasonal patterns.

The rest
Expect analysts to pepper Tim Cook and Chief Financial Officer Peter Oppenheimer with questions about the state of the economy, Apple's pricing strategy in the computer market, and Steve Jobs' return to day-to-day leadership of the company.

If all went well for Apple during the past quarter, it might also be time for analysts and investors to start wondering what Apple is going to do with all that cash: $25 billion at the end of its 2008 fiscal year. While Apple can point to the poor economy as reason for its thrift, if the company continues to perform well investors are going to expect Apple to invest that cash in something: be it another company, another product line, or investors themselves.

[Jonnygthedrummer]

they could give the money away for the , trillionth downloaded app from the app store

just like there giving away a macboook pro , ipod touch $10,000 of itunes an time machine fro the billionth download

[Seaspray0]

They could lower their prices and let the consumers enjoy a better value.

[Random_Walk]

Funny, but their prices are perfectly in line (and in many cases better than) comparably-equipped models from their competitors.

Of course, they could drop the prices and decimate their competitors in very short order. It would be interesting to see what HP and Dell do in such a dynamic, since they themselves couldn't possibly drop their prices any further for the cheap stuff, and Apple dominates the quality/high-end side of things already.

[seven7dust]

This a very negative way of looking at it
The thing is that Apple Is able to rely on either one of it's trio of product ranges to deliver
Few companies can to the same

[john55440]

Apple's products are so overpriced, that they don't have to sell many units to be highly profitable.

As for Mac sales outside of the US, according to both IDC and Gartner, the Mac's worldwide market share is in the Others category, somewhere below 5th-ranked Toshiba.

[Perry_Clease]

"Apple's products are so overpriced"

No they are not

[elllroy]

mac worldwide marketshare has been in the "others" category for years (probably around 3,5% at the moment). the article talks about international GROWTH, which was stronger than us growth in the last quarters thus a possible upsight for mac numbers this quarter.

[seven7dust]

Oh yes the ever used over-priced statement !
The only over-priced product on the face of the earth is
Microsoft windows
It's not even worth it free
The fact that you need to waste time fixing everyweek
With updates spyware scanners only re-enforces my point
Keep paying your microsoft tax cause your just ignorant ms puppet
Enjoy your harassment -:)

[Seaspray0]

Perry, compared to others, apple has a higher profit margin on each product. That means you are paying more than you would if apple had a profit margin comparable to others. So, either apple is overpricing or everyone else is underpricing.

[Perry_Clease]

"Perry, compared to others, apple has a higher profit margin on each product. That means you are paying more than you would if apple had a profit margin comparable to others. So, either apple is overpricing or everyone else is underpricing."

Everyone else is cutting corners to deliver shoddy. Well not "everyone", you can get quality stuff from others. However the price is on par, and often higher, to an equivalent Mac.

[Random_Walk]

@Seaspray: You forget something.

Dell and HP most likely garner far higher margins on models that compare in specs to the Macs, but they still come out thin because they have to take a thinner margin, or even a hit on each of the cheaper models they sell.

Apple on the other hand is rather consistent on their margins, and don't do 'loss leader' models, as Dell and HP do on a near-constant basis.

Anyone with even a rudimentary grasp of business can see this.

[El_Segfaulto]

Mmmm, that's some good kool-aid!

[CDubber]

"So, either apple is overpricing or everyone else is underpricing." - Seaspray0

Everyone else is underpricing. Good luck making money on those $300 laptops, Dell & HP. Their quest for market share at the expense of profitability is a fool's errand that will burn them in the end.

Apple is on the right track - despite what the blubbering trolls have to say about it.

[Vegaman_Dan]

@Seven7Dust

Come on now, don't hold back, tell us how you really feel about Windows.... :)

(typical defensive comment though- someone says X is overpriced and they will defend it by saying that unrelated product Y is overpriced because of personal beliefs and comments)

[elllroy]

it is always a relief to read something by someone who actually knows what he is talking about here at cnet. nice sum up, tom. still two small mistakes: first apple started to give revenue guidance in a range a few quarters ago. so apple did not project revenue of 7.6 bn but revenue in a range between 7.6 - 8.0 bn for the quarter.

and cash was 28,1 bn at the end of last quarter, now probably around 30+. and it would be interesting to talk a bit about the roughly 1.5 bn in deferred revenue that will be booked this quarter and the influence of the growing cash pile on future revenue and earnings.

[Seaspray0]

That pile of cash puts the company in a strong position, but stockholders and consumers are probably eyeing that reserve. Stockholders always want more dividends, and consumers like lower prices. Nobody has really found out why apple is hording such a huge surplus.

[Tom Krazit]

I had meant to take the midpoint of the revenue range ($7.8B) but for some reason just took the lower number. Will fix.

As for the cash, I used the number from the end of fiscal 08, because I couldn't find the Q1 number on Apple's site. I'll make that clear.

[Logic786]

Perry, Apples prices are overpriced. You can buy a HP computer with the same features for atleast $500 less than Mac computer. People pay for the style and the theme of the Apple computers. I have a HP that is much faster than iMac's and I payed a fraction of iMac's price. Im not a Apple "Hater", I own apple devices as well, but they are over priced. Well, Apple doesnt need to reduce their profits apparently. Other than that, Go Apple!

[seven7dust]

faster ? thats a very vague statement
faster in clock-speed and computing power maybe
but overall a Mac will be a better value because of Mac OSX
considering it will get your work done faster and more conveniently without the need for
constant maintenance ! you get peace of mind with a mac ,and that to me is worth the small premium
Macs are like cars with Automatic transmission ,while Pcs are more like manual
both have their place but some of us prefer Automatic hence the extra cost !
I hate automatic transmission BTW !

also when talking about Macbooks you don't pay a premium at all !
Find me a 13" laptop similar to a Macbook with 5 hrs of battery-life, LED backlit screen and good build quality you wont be able to find one thats cheaper Believe me I've looked !

also after 3-4 yrs when the time comes to replace my macbook
I'm sure I'll get a nice little upfront resale price which you definitely
wont get on the PC side !
So how exactly is my macbook over prized again ?

[frankholdem]

Apple computers do cost more than PCs, but I think most people who buy them feel that the cost is justified because you get an awesome OS, great built-in software, and probably the best service in the computer industry.

Many years ago I had many friends who would tell me that my Honda was overprice compared to American cars. Now, several years later, almost all of them have switched to Japanese cars after feeling the frustrations that often accompany products that compete purely on price. Its not always true that you get what you pay for, but in the case of Apple (and Honda), I've found that you get solid products backed by terrific service.

[SactoGuy018]

Apple's major revenue streams are no longer from the computer line, but from their iPod and iPhone line of products. Both of those have continued to sell VERY well indeed (because the iPod and iPhone work with either Macs or PCs) and as such will continue to have a very broad market base (I've read that the iPod nano is the #1 selling model portable music player in the world). And with the first-generation iPhone users coming up on the end of their two year AT&T contracts, expect another HUGE bump in revenue as these first-generation iPhone users renew their contracts with the third-generation iPhone due this summer.

[Vegaman_Dan]

Nothing is overpriced- if it sells, then it is priced perfectly for the person who buys it.

It has nothing to do with hardware, features, software, or scores of loyal zombies drinking Koolaid or whatever you want.

If someone buys it, then it's priced correctly. If someone chooses another product instead of that one because of price, then it isn't priced correctly for that person. That's not a bad thing- it all depends on your target audience. If Apple wants to target more cost-conscious customers, they would lower the price accordingly. If they want to market it more towards the luxury brand levels, then they take action accordingly.

Get over it, folks.

[chinow1]

well, i'll say your guys may right but i have a mac and is great, i know i payed more for this stile but its 100% more better . thanks

[Gregory Kelley]

When PC fans quote speed, shouldn't they be required to include the hour or two a week that they spend controlling the 150,000 or so viruses, trojans, etc.? Put that into your speed tests. And since Macs are such a bad deal, how come their share of market keeps advancing? I guess ALL those PC users who are switching are just too dumb. And those same darn users report enormous customer satisfaction rates in the computer user surveys. Some people drive Lexus automobiles, and some drive Yugos. The Yugos are definitely cheaper.

[Mark_Anderson]

Well Gregory, we would if we actually did spend an hour or two a week doing that. But since we don't it's irrelevant.

As for Macs, yup, the market share has gone from 'minuscule' to 'tiny'.

[Vegaman_Dan]

Excellent point! Let's count up the number of hours I have spent in down time or controlling the 150,000 or so viruses (please list them if you would, thanks) over the last 25 years that I have owned computers.

0.

Well now, that's an easy number to remember. But then again it's the same number of hours I have had to do that with the Macs I own as well. That pretty much disqualifies your argument entirely right there, Gregory.

I'm concerned that you are calling all those people switching to Macs 'dumb'. I don't think Mac users would appreciate that at all, but that is your opinion. I personally don't think any computer user is 'dumb' based solely on their choice of OS.

Some people do drive Lexus. I don't think you'll find many driving Yugo's though since those were discontinued nearly two decades ago and the factory no longer exists. Your car analogy sorta falls short there.

[Gregory Kelley]

To Mark Anderson, Based on your comment ? you have never had a virus, spyware, Trojans etc. If that is true then you are unfamiliar with the requirements of maintaining a safe computer environment that exists for PCs. You might be the only PC user on the planet with that situation. I have worked for three major corporations and they are spending many millions of dollars trying to stop this problem. I know a woman who worked in IT department of the international headquarters for a major Real Estate firm. 46,000 pcs on their network. You may not know about the virus problem but the rest of the world is vividly aware of it. In reference to market share, MSFT is currently generating about $60 billion in annual revenue. AAPL is generating about $40 Billion. I will let you do the math.

[Zaunto]

I haven't had any sort of virus or malware problem since I bought a Vista desktop in '07 and a Vista Basic laptop in '08. My laptop has exactly the same specs as the previous version Macbook and I paid hundreds less. AND I am able to use software I already own for work (Office 2003,Mixcraft recording studio, Beatcraft drum machine) and play (numerous games that all run great). Rich fanboys will always buy their fruit flavored toys, no matter the specs or performance. The 95% of the rest of us will buy what works for us too. We'll see how long the rich fanboys can keep Apple's pockets full. You can only buy so many Mac toys before the recession becomes a reality to even the fanboys.

[seven7dust]

performance ? ya right you don't get that Vista either
anyway try this on your vista laptop

http://www.youtube.com/watch?v=zz2z1XLSzpQ

FYI the model in the video is a 2007 macbook

it's no wonder why Macs have such good resale value
even 2 yr old machines outperform brand new Pcs. Lol !
this performance thing is totally overated BTW
in real world use macs win easily ! they would win even with Atom processors !

[Vegaman_Dan]

@Seven7Dust:

Wow. You really are quite gullible, aren't you? Do you believe everything anyone tells you about Macintosh? Hmm..


Hey, I've got a G4 here with a dead power supply. It easily saves more power than *any* new PC, Mac, or other computer today. Granted, it doesn't actually *work*, but according to your logic, it's perfect that way.

I don't agree with you however. Calling Macintosh performance overrated seems a bit harsh. I think they are quite capable machines.

[seven7dust]

@Dan

tells me ?
I use one everyday so why should I Believe wat anybody else says
I know from personal experience that Windows Vista or otherwise are memory hogs
that don't work as well as a mac O.S no matter the specs
wat I was trying to say is that looking at bechmarks is fools errand !
but thats just my opinion !

I guess you comment in other words is "I cant proove anything
But since I had bad luck with my older Macintosh now I'm just just sour"
maybe If I were in your shoes I would be pissed of as well
ah well better luck next time !

[AppleSuxLeo]

PALM was up today while everyone else was way down.
Why ? Simple. Palm Pre ! Plus those stupid iNames sound so dated.
Even iPods are outdated. My car plays my flash-drive via voice commands , as well as makes phone calls and reads and sends text-messages hands-free. TY MSFT !

[Hep Cat]

"They could lower their prices and let the consumers enjoy a better value."

What you're talking about is called " race to the bottom", and results in less value, not more.

[Constable Odo]

On the day earnings are announced, I'm wondering which share price will go up higher, Apple or RIM's. Usually what's good for Apple is good for RIM. They're still joined together at the hip.

[Vegaman_Dan]

Isn't it just grand when a simple story pondering what Apple's financial report will be is totally overlooked and degraded into a typical Mac vs PC flameware?

It really is impossible to discuss anything Microsoft or Apple related without the same thing happening time and time again.

[seven7dust]

blame all the Pc guys who constantly feel the need to bash Macs
with half-truths , lies and zero facts other than tired old arguments
Like overpriced Underpowered etc.
I also Find it Funny that these people wouldn't
buy a Mac even if it were Priced lower
they'll say stuff like windows has more software available etc.
So I Don't get why they are Whining in the first place !

[acaiberry]

Sounds interesting.

[play7]

oh joy joy!!!!!!!!!!!