Breaking Down the Apple Numbers

 | Jan 24, 2013 | 7:40 AM EST  | Comments
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(This piece was originally sent to subscribers of Action Alerts PLUS just after earnings on Jan. 23. Sign up for a free trial of AAP here.)

As with Apple's (AAPL) last quarter, there were some things for the bulls and some things for the bears. Unfortunately, since questions will remain, in terms of competition, supply constraints, the true gross margin trend and pipeline cannibalization, shares will likely stay in a trading range.

Simply put, even though the year-over-year numbers were quite impressive, it was not the blowout needed for the stock to move higher. At best, we see a trading range in the near term.

Gross margins at 38.6% were higher than the company's guidance of 36% and in line with expectations, half due to lower costs and the remainder because of a mix of iPhones, weaker currency and leverage on higher revenue. Analysts wanted to see a gross margin number of 50% or higher. Cash and marketable securities grew to $137.1 billion, compared with $121 billion sequentially. The company didn't indicate any new plans for its cash.

The breakdown of products was as follows: slightly lower-than-expected iPhone units, lower Mac units and iPods (less important) and higher-than-expected iPads. Clearly, the company was affected by supply constraints across the board in iPhones, iPads and Macs, but again, this leads to more questions than answers. iPhone sales at 47.8 million grew by 10 million units year over year but were below the 48 million consensus, Macs sold 4.1 million units vs. 5.2 million year over year and below the 5 million consensus (management said supply constraints led to just one month of sales for its new iMac), iPad units were 22.9 million units vs. the 15.4 million year-over-year level, iPod units were 12.7 million units vs. 15.4 million year over year, and iPads at 22.9 million were ahead of the 22 million consensus.

Again, the stats were impressive but will do little to comfort investors in the near term. We'll highlight them anyway. IPhones sold on a weekly basis were 3.7 million, or a 39%-per-week increase. On a sequential basis, iPhone sales rose 78%, or 3.5x IDC's industry growth rate. Greater China iPhone sales more than doubled year over year, and in the U.S., share grew to 51% from 45% year over year. IPad units increased 60% per week, led by the iPad Mini and the fourth-generation iPad and ahead of the IDC 56% growth for the tablet market.

Macs sold were 312,000 per week, vs. 371,000 per week last year, or a drop of 16%, likely caused by the supply issues. The company said its new iMacs were only able to ship in the final month of the quarter. Management said it would have seen "much higher" sales absent those constraints, and we concur. IPod Touch remained strong, and Apple's U.S. market share in MP3 players was over 70%. ITunes posted record results with revenue of $2.1 billion, with all-time quarterly records for revenue in music, movies and apps. The App Store posted a record 2 billion downloads in the month of December alone. Finally, Apple retail stores posted record revenue at $6.4 billion, fueled by the iPhones and iPad sales. It averaged 396 stores open at an average revenue per store of $16.3 million or $1.25 million per store per week. It hosted 121 million visitors in the quarter compared with 110 million year over year, or a 7% increase in visitors per week.

Guidance for the fiscal second quarter was conservative, as is typical and was expected, with revenue estimated in a range of $41 billion to $43 billion, compared with $39.2 billion year over year (in line with expectations), with gross margins at 37.5% to 38.5% -- higher than Apple's fiscal first-quarter gross margin guidance and flat equentially.

Overall, the stock is cheap (trading at 8x earnings ex cash), the balance sheet is stellar, and the product cycle and ecosystem remain compelling. But for now, the magic is gone, and since Apple has no near-term catalysts, its stock will remain in a trading range after the selloff and likely in the next few days.

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