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Apple Is a $700 Stock: Trefis

Stocks in this article: AAPL

Apple (AAPL) blew past expectations when it announced its second-quarter FY 2012 results Tuesday afternoon, posting its second best quarter ever and almost doubling its net income over the year-ago quarter.

The iPhone, the iPad and the Mac saw record March quarter sales helping Apple post over $39 billion in revenues that not only exceeded its own estimates by more than 20%, but also most analysts' as well. As a result of the growing economies of scale, gross margins improved heavily and net income surged to $11.6 billion, up 94% over second-quarter FY 2011. To put this figure in context, Google's (GOOG) entire revenue last quarter was $10.65 billion.

The record earnings was cheered by the market as the stock bucked the declining trend over the past couple of weeks to shoot up almost 8% in after-hours trading post announcement. In the wake of the earnings call, we have a revised price estimate of $700, about 16% ahead of the current market price.

See our complete analysis for Apple stock here .

International Sales Bulk Up iPhone Revenue

Apple continued to bank on the success of the iPhone 4S for the second quarter, running to sell more than 35 million iPhones last quarter. While this figure falls just short of the 37 million iPhone sales posted in the record December quarter, it easily dwarfs the 18.7 million sales recorded a year back.

After the frenetic holiday buying seen last quarter, when the iPhone 4S was launched, we expect to see a seasonal slowdown in iPhone sales. While this was true in the developed markets of North America and Europe, Apple was able to recoup most of the losses by expanding its operations overseas.

Two of the largest U.S. wireless carriers, Verizon (VZ) and AT&T (T), reported iPhone sales recently and the combined unit sales for the quarter came to about 7.5 million versus last quarter's combined sales of close to 12 million. The seasonal slowdown shows Apple's combined revenue from the Americas and Europe fell 25% sequentially. However, the iPhone 4S's launch in China on China Unicom's (CHU)and China Telecom's (CHA) networks last quarter helped its revenues from the Asia Pacific region grow 32% over the previous quarter, making up for most of the slowdown in developed market sales.

Going forward, China holds a lot of promise, considering the huge 2G subscriber base that the carriers there are trying to transition to 3G (3G penetration is currently only 14% in China). A deal with China Mobile (CHL), the largest carrier in the world by subscriber base, is looking increasingly likely, following Qualcomm's recent announcement and Apple's similar deals with the other two carriers.

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