Crunch Time for Apple

SAN FRANCISCO -- Investors are hoping Apple(AAPL Quote) can deliver first-quarter results that get the company's stock going again.

Apple shares are now off nearly 20% from their high of $198.95 on Dec. 26. The Cupertino, Calif.-based company reports first fiscal-quarter results after the market closes on Tuesday.

The company enjoyed robust holiday sales during the quarter, with the Apple MacBook among the top sellers on online retailer Amazon.com's(AMZN Quote) list.

News You Need: Apple, BAIDU

Apple's iPod line of products, including the iPod touch and the launch of the iPhone in overseas markets such as Germany and U.K., also could play an important factor in boosting the company's financials.

Over the last eight quarters, Apple has beaten consensus estimates by an average of 23%, with the highest earnings surprise of 45.3% in the quarter ended December 2006 and the lowest of 7.1% in the quarter ended December 2005.

Apple took a hit after its announcements at the Macworld Conference & Expo last week failed to satisfy investors. The stock fell nearly 5% after CEO Steve Jobs unveiled the company's latest products.

At Macworld, Apple announced a new lightweight notebook, MacBook Air. Billed as the world's thinnest, the laptop, which weighs about 3 pounds, features a 13.3-inch screen, a full keyboard, a built-in camera, but no CD/DVD drive. Apple also announced an iTunes movie rental service and upgrades to its Apple TV product.

"Apple is evolving from a computer company to a consumer electronics company," says Barry Jaruzelski, vice president of the strategy and innovation practice at management consultancy Booz Allen Hamilton. "And because they don't have the scale of some of the other players in the space such as Sony(SNE Quote), they are being careful and slowly adding new categories such as movie rentals."

Mike Abramsky, an analyst with RBC Capital, told clients in a research note that the stock could have gone down because of unrealistic expectations of iPhone sales, the lack of a killer product like last year's iPhone, and general downward market pressure.

He said Apple's fundamentals remain unchanged, with a likely upside surprise from continued strong sales of Mac products and expectations for iPhone sales to exceed 10 million units by the end of the year.

Apple shares closed Friday at $161.36, up 47 cents, or 0.29%.

For the first fiscal quarter of 2008, analysts polled by Thomson Financial are expecting earnings of $1.61 a share on revenue of $9.44 billion, up from $1.14 a share on $7.11 billion the year before. By contrast, Apple's forecast calls for $1.42 in EPS and $9.2 billion in revenue.

"Apple's December quarter EPS guidance was unexpected, given the Street was anticipating $1.36," says Gene Munster, an analyst with Piper Jaffray, which makes a market in Apple shares. "Apple has not issued guidance above Street consensus since the December 2005 quarter, and it remains to be seen whether the company has maintained its practice of conservative guidance."

For the current quarter, analysts expect Apple to report EPS of $1.09 on revenue of $6.97 billion.

Apple could see an upside in its gross margin in the first quarter, which could drive EPS higher. Apple has guided for a 31% gross margin, but could report a margin of 33% to 35% because of a continuing decline in NAND flash prices, analysts say.

Analysts also will be closely watching iPhone sales during the quarter. At Macworld, Apple said it has sold 4 million iPhones in the 200 days since the mobile phone went on sale, or an average of 20,000 iPhones a day.