No Reason Apple Can't Shine Again

If any company should show strength in the current environment, it would be Apple (AAPL - commentary - Cramer's Take), given its increasing share gains in the PC market as well as the launch of the iPhone 3G on a worldwide basis during the fiscal fourth quarter.

Apple will be report earnings Tuesday after the market close, with a conference call to be held at 5 p.m. EDT. The current street consensus is for revenue to be $8.05 billion (+30% year over year; +8% quarter over quarter) and EPS of $1.11.

In the prior quarter, revenue was $7.46 billion (+38% YY; -1% QQ) with EPS of $1.19. Gross margin was 34.8% or down 210 basis points from last year and up 190 basis points sequentially. Operating margin was 18.6%, with a decline of 60 bps YY and an increase of 110 bps on a QQ basis.

Cash from operations remained quite strong at $1.32 billion with the cash account up a similar amount to $20.8 billion. Accounts receivable was essentially unchanged as were the days sales outstanding at 19 days. Inventory increased about $200, pushing days of inventory up three days to 10 days as the company readied for the iPhone 3G launch.

Apple's top line was once again driven by Macintosh with revenue up 42% year over year and units hitting 2.5 million and achieving record market share of 19.5%. Somewhat surprisingly, desktop units and revenue actually outpaced growth of the MacBooks.

iPods also posted solid growth, with units up 12% from last year and revenue up 7%. Music remained quite strong with 35% year-over-year growth, Peripheral sales grew 42% from last year and software revenue gained 30%. The company deferred recognition of sales after March 6 until the iPhone 3G was launched (July 11) so iPhone revenue was up only 11% from the prior quarter, and units were down by about 1 million to 717,000.

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At time of publication, The Telecom Connection model portfolio, which Faulkner writes, was long AAPL.

Bob Faulkner has been in the investment business for 18 years with an exclusive focus on technology stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Faulkner appreciates your feedback; click here to send him an email.

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