It won't be a complete surprise to Wall Street to see another quarter of earnings and revenue upside from Apple ( AAPL) on Wednesday. A report of hefty holiday iPod sales is likely to deliver another nudge to a stock that closed at an all-time high Tuesday. Apple, which reports its fiscal first-quarter earnings after the closing bell, has seen its shares take a volatile ride over the past few months. The stock fell more than 10% in December, but sharply rebounded after Apple CEO Steve Jobs unveiled the company's
new iPhone -- as well as Apple TV, a device that plays PC-generated videos and music over home entertainment systems -- to the Mac faithful at an annual gathering last week. Still, the news that Cisco ( CSCO) is suing the company for allegedly violating Cisco's iPhone trademark, as well as reports that federal authorities are zeroing in on a grant of 7.5 million stock options to Jobs, weighed on the highflying shares just before the holiday weekend. On Tuesday, however, investors seemed to want a piece of a possible post-earnings bump. Shares of the Cupertino, Calif., company closed up 2.6% to $97.10. The first quarter is typically the strongest for Apple, thanks to holiday sales. In 2006, its December-quarter sales represented about 30% of the company's annual revenue. For the quarter, the average analyst estimate from a survey by Thomson First Call pegs Apple for a profit of 78 cents a share and revenue of $6.42 billion.
When Apple last reported earnings, it
surprised the Street with strong growth in its Mac business. One analyst sees more upside on iPod sales than Mac sales this quarter, due in part to seasonality and the success of the smaller, revamped iPod shuffle. "People were surprised by the rapid upswing in Mac sales (last quarter), and that story was not really being told very loudly, and now it is," says Tony Ursillo, an analyst with Loomis Sayles, which holds Apple shares. He believes the numbers are "more easily beatable for the iPod side of the house than they are for the Mac side of the house this quarter. That isn't to say that the Macs won't do well." Ursillo expects the company to beat the earnings consensus estimate by several pennies, saying the company "should easily beat 80 cents." It's also possible that Apple could post upside to its gross margins, maybe hitting 29%, due to a nice mix of products and economies of scale, he says. iPod sales could exceed estimates by a million or more, wrote Deutsche Bank analyst Chris Whitmore in a Tuesday note, while Mac sales may be 200,000 to 300,000 higher than his forecast. "We maintain a positive bias to our Apple estimates of 16 million iPods and 1.6 million Macs," Whitmore wrote. "Our checks indicate robust holiday demand for both iPods (shuffle and nano) and Macs which should translate into EPS upside."
Apple stores "experienced very strong demand across ... Mac and iPod product lines," over the holidays, he noted. Whitmore has a buy rating on Apple, and his firm does and seeks to do business with the companies covered in its research reports. JPMorgan analyst Bill Shope expects the company to report revenue of $6.61 billion and EPS of 82 cents -- well above the consensus -- which would likely drive earnings estimates and shares higher. He rates the stock buy, and his firm has provided the company with non-investment banking securities-related services. Shope noted that the latest sales figures from the iTunes Music Store -- over 2 billion songs, 50 million TV episodes, and more than 1.3 million movies sold -- should also bode well for earnings results. Gartner analyst Mike McGuire said in an interview that there were anecdotal reports of iTunes servers being overwhelmed by the traffic immediately after Christmas. While Apple's March quarter represents its lightest share of annual revenue, investors also will look for any word that the company can deliver yet another positive surprise three months down the road. Analysts anticipate EPS of 60 cents a share on sales of $5.24 billion.