A Good Apple Could Keep Tech Afloat

Editor's Note: This column by Steve Birenberg is a special bonus for TheStreet.com and RealMoney readers. It appeared on Street Insight on Jan. 17 at 2:41 p.m. EST. To sign up for Street Insight, where you can read all of Birenberg's commentary, please click here.

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Apple Computer (AAPL Quote) reports after the close on Wednesday, Jan. 18. Following Steve Jobs' comments at the Macworld Expo last week, estimates have moved up sharply. Jobs guided to $5.7 billion in revenue for the December quarter, and analysts who have adjusted their estimates are tightly clustered around this figure. There was no specific guidance on EPS at Macworld, so these estimates are more varied. The range is from 59 cents to 69 cents per share, up about 10 cents from before Jobs' speech. Estimates have risen sharply for fiscal 2006 as well. The range of EPS estimates is now $1.95 to $2.53, up about 30 cents at the midpoint. Revenue estimates for 2006 range from $19.4 billion to $22.3 billion, up $2 billion to $3 billion.

I think the big question mark for the December quarter is, how good were margins on the incremental $700 million in revenue AAPL booked relative to prior estimates? Fourteen million iPod shipments accounted for the positive surprise, as Mac shipments actually may have been 100,000 units under expectations. Recently, average selling prices, or ASPs, for Macs have been running around $1,400. Therefore, if units were 100,000 short, this might imply a revenue shortfall of $140 million in this unit. If so, that would mean that the extra iPod unit sales made up closer to $800 million in revenue.

At 3.5 million units, that implies an average revenue per unit of $228 for incremental iPods. That feels a bit high to me, but I think the math suggests that sales of the new 30GB and 60GB iPods must have been quite strong in the December quarter. These units earn higher margins than the 2GB and 4GB nanos, which were also strong sellers during the holiday season. The range of analysts' estimates is most likely a function of how the mix of iPod sales is viewed along with the level of Mac sales that carry different margins than iPods.

To view a video preview of Wednesday's call, click here.