Comments on: Apple posts strong earnings, cautious outlook

Mac maker reports first-quarter earnings ahead of estimates, but offers a forecast below analysts' expectations.

[shadowself]

Strange perspective

Apple is predicting a better than 30% growth year over year for their second fiscal quarter (first calendar quarter of 2006) and people call this "conservative"?

For most businesses that have been around for almost 30 years a prediction of 30% year over year growth would be considered pure fantasy.

[Thomas, David]

Consider the Source

... That is all I can think of. This is a golden company, living
through another era of its own version of Camelot. Its never
been an "evil empire", nor an apathetic cow. One can honestly
say that this company has fought through a lot of things, and
yet still works hard to maintain, in earnest, it's identity. The fact
they can accomplish all this, and still succeed, is remarkable in
itself.

There is a new wave in our industry (it's about time), and it is
multi-colored.

Because of this, "agents" will fabricate, expound, mis-interpret
just about any information they can get their hands on. For this
story to even attempt to imply that things aren't so good for
Apple, is laughable. It's like spitting in the wind.

[Thrudheim]

Apple is being conservative

compared to expectations. That's the key, I think. The stock
price can only be justified on expectations that Apple's utterly
pheonomenal pace of growth will be sustained by an increasing
market share of Macs and products yet-to-be-announced. The
stock price is thus very sensitive to any hint of things slowing
down, even if the overall picture is still extraordinarily good.

It will be hard for Apple to increase sales much this quarter
because the MacBooks won't start shipping until mid-February,
and the lack of adequate supply of chips (all the manufacturers
are after the Core Duo for right now) means that there is no way
Apple can meet demand for the time being. As Intel ramps up
production, things will get better.

[Joe Blow]

Spin City on Steroids ...

is the only way one can describe the wacky world of "managing investor expectations", especially when your company's CEO is a Master Jedi capable of generating his very own Reality Distortion Field (and this isn't necessarily a bad thing). Anyone who pays much attention to the bleating of stock analysts needs to take a look at the track record of these bozos. As has been shown time-after-time, the Tic-Tac-Toe chicken and a chimp with a dartboard consistently outperform the "experts", and even the index funds, over the long haul. The relentless focus of the analysts on quarter-to-quarter (and even year-to-year) performance is completely useless information for any serious investor.

I'm guessing that part of the Apple/Intel alliance means that Steve is paying Paul a premium for all the Dual Cores that can be pumped out for delivery to Apple. It takes a couple of months to fabricate any given modern complex microprocessor (but millions of them are being masked, etched, gassed, baked, polished, rinsed, and repeated in parallel), so it's not possible to throttle production up or down very easily. Apple can and does fetch a premium for its products, so they will have easy head-of-the-line priveleges at the loading docks at Intel's fabs, compared to the typical PC manufacturers that are essentially stuck pushing me-too commodity products where about the only differentiator is price, which means profit is dicey, at best, and certainly not in the realm of being able to charge any kind of premium. There are some amusing brand plays going on, such as the Red Ferrari slim laptops, but the volume of those is so low as to be negligible (although, I have to admit, I'll probably pick one of those up off ePrey long after the market has been satiated at MSRPs, because I do collect interesting computing variants as a senior docent and restoration engineer for a technology museum).

Another manufacturing timing factor is that this is the low point for consumer electronics production volume of completed products (e.g., laptops, desktops, DVD players, set-top boxes, PVRs, etc.) during the year. So, this is when ramp-up of new products occurs (i.e., final debugging of the manufacturing processes and training of fab employees), because production of high-volume finished products such as DVD players, HDTVs and low-price computers for the next holiday season will begin by the Summer. Whatever is going to be built in the way of subcomponents (motherboards, display panels, video and audio daughterboards, power supplies, etc.) for all lower-volume products (e.g., high-end laptops) will be happening over the next few months. After that, market demand will determine what availability will be over the rest of the year. I guess iPods may actually be entering the highest tier of production, given that the annual sales are now firmly in the eight-digit range, but production of those has likely been well wrung-out over the past few years, so they will continue to be made through the latter part of the year for delivery just in time for holiday buying.

Therefore, Apple has to be conservative about its estimates, relative to its record performance over the last couple of years, not the much lower performance typical of the commodity PC makers. For every MacBook Pro they can't deliver when someone is ready to order it, they're going to lose bookable revenue, at least quarter-to-quarter, if not altogether. My company is considering buying MacBook Pros as part of its annual computing acquisition and upgrade cycle, and a total number of several brands will be purchased, but it's up to Apple as to how many of those will be MacBook Pros. Any orders that can't be filled, will go to another manufacturer.

Go get a container of Morton's Iodized Salt to toss over your shoulder after the analysts have done their blathering.

All the Best,
Joe Blow