Expectations Are High for Apple 4Q Earnings

 | Oct 18, 2011 | 8:00 AM EDT
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Apple (AAPL) will report fiscal fourth-quarter earnings Tuesday after the market closes. Most of the Street is predicting a blowout quarter. Average estimates are for earnings of $7.31 per share on $29.45 billion in revenues.

Other Street estimates include:

  • iPhone unit sales of 19.75 million
  • iPod unit sales of 7.41 million
  • iPad unit sales of 11.39 million
  • Mac unit sales of 4.44 million
  • Gross margins of 40.1%

To get an idea of just how much Apple has accelerated in the past year, the company delivered earnings of $4.64 per share in the corresponding quarter a year earlier.

Of course, Apple has consistently under-promised and over-delivered on its earnings, so most expect a "beat." But by how much?

In the past several quarters, the best way to gauge this has been to look at a compilation of the bloggers' estimates. Philip Elmer-DeWitt at Fortune has the average of the best six bloggers over the past six quarters.

These bloggers have been almost on the nose in each of their last quarters except for the most recent quarter (the fiscal third quarter), in which they also underestimated Apple's performance. The regular sell-side analysts on Wall Street have consistently underestimated Apple results by 5% to 10%. This time around, these wise bloggers are estimating:

  • Revenue of $33 billion
  • EPS of $8.88
  • iPhone unit sales of 22.35 million
  • iPod unit sales of 7.56 million
  • iPad unit sales of 13.06 million
  • Mac unit sales of 4.72 million
  • Gross margins of 41.3%

Colin Gillis of an outfit called BGC Partners downgraded Apple on Monday to "Hold" from "Buy," saying it was "priced for perfection." He said he believes the expectations are too high and Apple is bound to disappoint on the 20 million-iPhone number for the quarter. He also believes that iPad is going to be a disappointment.

There is limited history to judge how seasonality and product refresh will affect sales of iPads, and consensus estimates of 11.5 million units sold assumes shattering another record. Because the iPad is Apple's second-most-meaningful revenue stream after the iPhone, if the company does not continue to set mind-blowing records (iPad sales account for more than 10% of worldwide PC sales just five quarters after launch) it will be difficult for other parts of the business to cover the gap.

We shall see. Gillis' prognostications in past quarters have placed him nineteenth out of all Apple analysts. I estimate that Apple will be closer to Horace Dediu's estimates of $33 billion in revenues, $9 in EPS, 10.5 million iPads, and 26 million iPhones.

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