Update: Apple Trounces Estimates

Both earnings and revenues beat expectations.
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For the fifth quarter in a row,

Apple

(AAPL) - Get Report

handily beat analysts' consensus estimates, reporting fiscal second-quarter net income rose 82% to $93 million, or 60 cents a share, from $55 million, or 38 cents a share in the same quarter a year ago. The

First Call

consensus was 57 cents a share.

Apple's revenue growth also didn't disappoint analysts. The Cupertino, Calif.-based company reported revenue of $1.53 billion for the quarter, up 9% from $1.4 billion a year ago. As expected, gross margins dropped slightly to 26.3% from 28.2% in the first quarter. At close of trading Wednesday, Apple rose 1 1/8 to 35 3/4.

The following story was originally published on April 14 at 7 a.m. EST.

Apple Watchers Go Gaga Over Gadgets

Apple

(AAPL) - Get Report

seems to be suffering from Compaqitis.

While Apple's second quarter -- which will be reported Wednesday after the close -- is expected to be the company's fourth profitable quarter in a row, investors and analysts don't seem to be buying Apple stock, which is down 11% year-to-date. Instead, everyone seems to be waiting for news of Apple's next hot product.

Just in time for the all-important third-quarter back-to-school season, Apple is planning to launch a consumer handheld device in the second half of the year. Its code names -- Apple loves a good code name because it creates media buzz -- are P1 and the more user-friendly iBook, according to Lou Mazzucchelli, an analyst at

Gerard Klauer Mattison

. Apple's recent turnaround has come with the introduction of innovative products such as the multicolored

iMac

, the ultra fast

G3

professional server and

Mac OS 8.5

operating system upgrade.

Analysts expect the company to earn 57 cents a share, a 50% increase over its quarterly results from a year ago, in its second fiscal quarter ending March 27. As for revenues, expectations are for $1.54 billion in the quarter, a 10% year-over-year increase. Although last quarter the company reported earnings of 78 cents a share on revenues of $1.7 billion, this will be the second quarter in a row -- after two years of declining revenues -- where the Cupertino, Calif.-based Apple reports year-over-year revenue growth.

"Apple is just sticking to its knitting," says Mazzucchelli, who rates the stock a buy and sees some upside to his 59-cent estimate. His firm has done no Apple underwriting.

The growth is certainly there, but analysts are concerned about Apple's market share. "Apple still has a slight economies-of-scale problem," says Dave Tremblay, senior industry analyst at

ZD Market Intelligence

, a market research firm. Apple, he says, only had 3% worldwide market share in 1998, compared to 15% for worldwide leader

Compaq

(CPQ)

. (Tremblay doesn't rate stocks.)

Much like the rest of PC industry, Apple will report lower sequential unit growth, around 830,000 to 850,000 units vs. 944,000 in December, according to Eric Yang, editor of the Webzine

MacEvolution

.

"I think the quarter also will be helped by a strong introduction of the G3, which is selling well and has gross margins in the low thirties," says Yang, who owns Apple stock. Apple had gross margins of 28.2% in its first fiscal quarter, but Apple CFO Fred Anderson told analysts to expect margins in the 25% range this quarter. "I think the margins, thanks to the G3, will be higher," predicts Yang.

At the company's shareholder meeting on March 24, it seems that CEO Steve Jobs and Anderson just about let the rabbit out of the hat, according to one investor. "They essentially told me that they can't miss this quarter," says one institutional shareholder, who requested anonymity.

But it's their hot gadgets like the iBook, set for launch in the second half of the year, that could determine how rosy Apple's future remains.