Analysts start to sweat Apple's Q2, outlook

Analysts start to sweat Apple's Q2, outlook

Summary: Apple analysts have quickly stopped yapping about $1 trillion market caps and $1,000 stock prices and now sweat iPhone volumes and the outlook for the June quarter.

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Apple's fiscal second quarter results are more than a week away, but analysts are already sweating what is likely to be a softer-than-expected outlook for the third quarter, cannibalization from a cheaper iPhone and the timing of new product launches.

In short, analysts have quickly stopped yapping about $1 trillion market caps and $1,000 stock prices. Wall Street is expecting Apple to report second quarter earnings of $10.10 a share on revenue of $42.59 billion.

On Tuesday, a pair of analysts cut estimates and price targets. The first price target cut came from Gene Munster, an analyst at Piper Jaffray who made his name chronicling Apple's rise.

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In a research note, Munster remained upbeat about Apple's prospects, but cut his price target to $688 from $767. Munster walked through the worst case scenarios for Apple, indicated the company's outlook will likely disappoint and stressed that worries about a cheaper iPhone hurting profit margins are manageable. Munster's bottom line: If Apple launches a $300 (unsubsidized) iPhone starting in September to compete globally it will have a 30 percent cannibalization rate. He said:

Factoring In 30% Cannibalization (i.e. for every ~3 cheaper phones sold, 1 full priced phone is cannibalized). We expect Apple to sell a $300 iPhone starting in September. For CY14, we now expect 6% high end iPhone unit growth or 37% share of high end market vs. 43% in CY12. We believe Apple will sell 75m cheaper phones or 11% of the low end (below $400) market vs. 0% in CY12. Given Apple's 42% share of the high end market in CY12, we believe getting 11% share of the low end market in CY14 is achievable.

Munster also expects Apple to project June quarter revenue of about $34 billion to $36 billion. The problem: Wall Street expects $39.6 billion in revenue for the fiscal third quarter. Munster is expecting flattish iPhone growth year over year in June.

Meanwhile, Stiflel Nicolaus analyst Aaron Rakers also cut his revenue estimates for 2013 and 2014 and his price target to $600 from $650. Rakers said he expects a June quarter trough for iPhone demand ahead of an iPhone 5S launch. He also said he expects Apple to ship 17.2 million iPods with the iPad mini representing about 11 million of those units.

Rakers said:

iPhone Shipments Reduced, but Not Terribly Surprising at This Point. For F2Q13 (March) we reduce our iPhone unit shipments to 35.0 million from 38.7 million (0% y/y growth versus 29% y/y growth in F1Q13). We are more cautious about the March quarter as there were fewer new carrier launches of iPhone 5 after the strong acceleration in December. Recall that iPhone 5 began shipping in the U.S. and eight additional countries at launch on September 21 (versus U.S. and seven additional countries for iPhone 4S), followed by a launch in 22 more countries in one week (versus 22 more countries in two weeks) and ramped to a total of over 100 countries within the December quarter (versus 100 countries in four months for iPhone 4S). In addition, we continue to see the competitive momentum building with Samsung’s S4, HTC’s One and Blackberry’s Z10.

Overall, analysts are fretting about Apple because they lack visibility into the company's plans. That approach was fine when Steve Jobs ran Apple, but now the company is a big chunk of everyone's portfolio. In other words, Apple is owned by everyone and that means they want the good times to continue or at least a better use of cash. Barclays analyst Ben Reitzes captured the concerns. He said:

Investors know that Apple is committed to quality products and innovation already – but given its size and importance in investment portfolios – we need more. We believe that the highly secretive Apple is on its way toward becoming more open over the next year – and could start to give a bit more incremental information to investors get a better idea of the company’s direction.

Specifically, Reitzes is betting that Apple will share its long-term goals, position on things like phablets, retail operations and TV strategy. "Going forward we believe that Apple will also need to address how it is dealing with complex production issues. Lastly, we would like to hear more details on its long term plans to expand in the enterprise," said Reitzes.

Topics: Apple, iPhone, iPad, Mobility, Bring Your Own Device

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88 comments
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  • Prediction

    Apple will sell more iPhones than they did last quarter. Stock will still go down as analysts have no clue.
    itguy10
    • serioulsy everyone

      why is this person Vulpinemac almost replying to everybodys comment? seems like he cant take even very slight negative word against apple and he fells he is obliged to depend apple in anyway. lol
      Odel Babor
  • Where have we seen this before?

    "In short, analysts have quickly stopped yapping about $1 trillion market caps and $1,000 stock prices."

    Hmmm...let me think...way back in 2000 with a small, unknown company named Cisco. My, my how we never learn from our past.
    ye
    • Small unknown company?

      Obviously you know nothing about computer networking, and Cisco's stock wasn't the only one to take a big hit with the dot com bubble burst.
      GoPower
      • Apparently someone is unable to recognize obvious sarcasm.

        I mean we're talking about $1,000 / share stock price and $1 trillion in market cap.
        ye
    • Cisco in 2000?

      Their success story happened way before then. By 2000, Cisco was already huge company.

      But what do I know... ;)
      danbi
      • Cisco was to be the first trillion dollar company.

        Just like what we were hearing about Apple.
        ye
    • Sometimes it seems nobody has a clue the past exists.

      And plenty of those exist around here.

      Arm chair critics and prognosticators who are predictors of the future seems to be the wannabe professions of the IT industry.

      Nobody, it seems is happy around here that any product or company they do not particularly agree with nor particularly like should be allowed to live, and as such, or at least so it seems, the unusual combination of wanting to be a fortune teller and wanting specific corporations to die creates what seems to be a completely unstoppable urge to predict the premature death of all sorts of companies.

      This isn’t an entirely new phenomenon. It’s a rather old (in IT terms) practice that interestingly enough has never been proved to be accurate in any significant way despite numerous attempts at this predictive behavior. The calls for the demise of particular companies have often been called for in circumstance where some issue arises that may indeed take down a minor entity, but fortunately for the real world, it appears that IT people are actually complete idiots in the world of corporate big business and don’t have so much as a wee bit of a clue about the incredible forces it takes to topple a colossus like many of these large IT actually are companies are.

      A fine example, one of the best was back in about 2006 when Intel was getting its hind end kicked real hard by AMD in the 64bit processor war. AMD enthusiasts who, for reasons only the truly bizarre and mentally unstable may appreciate, many of which absolutely hated Intel decided it was the end of the road for Intel and used the fierce beating Intel was taking from AMD at that time as reason for predicting the end of times for Intel. Those with a brain begged to differ, but of course were called idiots by the idiots. Isnt that the way.

      But then came the Intel Conroe and as has always been the way, killing off a colossus was proved to be far far more difficult than predicted.

      Why do people in IT so ferociously hate one product or another, to such a degree they are willing to sound like a madman? Who knows, but anyone who reads these pages at ZDNet with a truly open mind about all products knows this to be a fact.

      Here are some very basic facts about business. That is, once you produce a product that sells in the millions of units at a price that can generate a profit that can sustain a company, the company will only go broke through further mismanagement, often to a horrific level before they go broke. This has to escalate to even higher levels of misfortune and mismanagement the larger and more powerful the company has. It requires the inability to manage resources and staffing and often some extended brutal mismanagement of product sales and advertising.

      Its very hard to kill a humongous company so long as they are still selling millions of units of profitable product. Sorry but its true. Of course if they stop selling as many units, or prices drop to unsustainably low prices, if the ship starts to keel over and nobody in management does a single thing to keep it from capsizing but instead continues to run it hard into the waves, well, ya, it will start to take on water and if nobody is made to bail it will begin the process of sinking.

      Few companies in the entire history of the world have gone down like the Titanic. And with obvious good reason. The Titanic sank as fast as it did because it literally rammed an iceburg with a mass numerous times its own size. To put it bluntly, there is no analogous situation of that needed size ratio and reasoning for impact that exists in the IT world, so there currently is no way for things to happen quite that way.

      Lessons to be learned. Number one is to get real. As is lesson number 2.
      Cayble
  • Apple is finished, back to traditional 5% market share.

    Apple has no exiting products to offer and all their products lack substance and highly overpriced. I think most sensible consumers are moving away from iProducts.
    Owllll1net
    • I just moved back.

      Had a Windows Phone 8 and moved to an iPhone 5 last Friday (since T-Mobile just obtain the iPhone). Loved the Windows Phone 8 but it had too many little things which had me picking up my iPhone 4S to work around.
      ye
      • Growing pains.

        I would EXPECT Windows phones to be less polished than android or Apple.
        theccur@...
    • Now if you could only spell... and use logic

      Your argument is based purely on emotion and hope, not any form of logic or reasoning. You have no figures to support your argument other than two analysts--one who has been notoriously wrong for several years now--guessing on products and shipment numbers that don't even exist at the moment.

      Here's one stupid question for you: If a cheaper iPhone is made by Apple and sells more units than the number of iPhones it cannibalizes, who gets the added profits?
      Vulpinemac
      • That depends...

        ...on a number of factors. If the cheaper iPhone has a profit of $50 and the higher priced iPhone has a profit of $200 then Apple would need to sell 4x as many cheaper models to make the same profit. And that assumes the cost to sell 4x as many remains the same as for 1/4.
        ye
      • You are missing the not so secret ingredient in the apple sauce!!

        Now, who is hopeful?! I didn’t like Jobs or care for his products, but he always had my respect. He was able to see pieces in front of him and guide his team to FINE TUNE products in a manner others could not.

        iPod was not new, in fact there were many mp3 players in the market. Jobs was able to take the pieces already in the market and drive his team to FINE TUNE an mp3 player into an iPod.

        iPhone was not new, it still had edge while all the other phones were already on 3G. He was able to look at the phone market and FINE TUNE phone into what we now know as the smartphone market!!

        Another thing Jobs did well was QUALITY over QUANTITY. He always priced his products HIGH, but he never left you desiring more or another. When you paid him several thousand, you knew you had the best screen, most/best RAM, biggest SSD, etc. Apple is the only OEM I know of that offers 768GB SSD. I am a Windows user. Even though I am willing to PAY – I could not get a 768GB SSD with Mac Pro’s aesthetics.

        Lenovo Carbon X1 is the closest thing to Air. I know there is a Samsung – we have one and my employee hates it - POS. Asus and Acer make Dell look awesome, so let’s not go there.

        So back to Lenovo… According to Lenovo, spec’d to the max, X1 is $1,959; because they are so loving and caring with a $235.08 discount it is ONLY $1723.92! Air spec’d to the max is $1899 – no sale, no discount. For the extra ~$150 or so, you get 512GB SSD; Carbon X1 had only 256GB SSD.

        When I am done with Lenovo I feel like I was just got hosed at a used car dealership. ‘The real price for this fine machine is 1959, but for you only, this limited time it can be yours for ONLY 1723.92” – can’t you almost see the gold tooth and slicked out hair.

        Jobs understood that pricing is NOT what gets customers, it is QUALITY. Customer may not ask for it, but he always gave them the best specs that they paid for.

        You do not have a visionary running Apple anymore. Under Jobs you wouldn’t have a bigger iPhone or a smaller iPad. He would never sell a budget phone – it was against his ethos!! He would ONLY sell the best spec’d phone – regardless of the lesser market share. And that was Apple that soared to $700 and had the prospects of reaching $1000.
        Cain69
        • i had an ipod

          it was rubbish.
          worse charging circuit in the world of portable electronics.
          doesn't charge properly from non registered USB ports.
          when its flat, it can't boot up. it won't charge if it can't boot. stupid no charging loop.
          iTunes keeps replicating empty playlists and losing songs.
          it could not do the one thing I wanted which was to edit the mp3 tag on the iPod itself because that is when you have all the time in the world to edit it. can't even edit playlists except set one on-the-go.
          it was a shiny piece of turd really.
          warboat
          • ...

            You obviously had no idea what you were doing. I've used several iPods and never had a problem with any of them. How do you expect to boot any device that has no power in the battery? Also, you DO realize that (especially USB 1) most USB ports on a windows or older machine provide less power? Apple USB ports provide up to 10 watts of power, USB ports on a PC provide max of 2.5.

            Example:

            PC - The regular USB port on a PC provides 5 volts at about a maximum of 500mA of current- which is about 2.5W of power and doesn't recognize any special devices/can't give more.

            -This means you are charging HALF as fast as you would from a wall charger. What would charge in 4 hours takes 8. You are right, TERRIBLY slow.

            MAC - Apple uses technology to recognize any iOS device so it delivers a full 1.0 amp of power to the device (a wall iPad charger delivers up to 2.0 amps). Therefore an iPhone/iPod will charge at it's maximum of 5 watts. (Twice as fast as a PC USB port - the same as a wall charger). Any other device will charge at the normal 2.5 watts, even on a MAC because it doesn't communicate that it can take more.

            So simply put, you didn't know what you were doing with it, don't understand the technology or the best way to use it and whine when it didn't work right, pretty much based on user error.

            Btw, I don't know how long ago you were using iTunes? but those problems haven't existed for a few years now. The losing songs lists, etc. You can create multiple playlists and edit them on the fly. No you cannot rename your songs on the go, but I wouldn't want to do that anyways on a tiny screen. You can edit almost all the MP3 metadata in iTunes, which gets saved to the container.

            The ONLY thing you mentioned that was even remotely correct was that no, you cannot boot it up when it doesn't have enough power to boot up.
            Stormborn
          • Uh Yeah...

            Even if you had a bad iPod, your experience is utterly and completely irrelevant. For Odin's sake the iPod has been the #1 PMP on the market for almost 10 years. The iPod's quality, longevity and usefulness is a done deal, an established fact. And you think your (suspect) experience should mean something to us?
            His_Shadow
    • hahaha, what's up todd

      I love how everyone who loves to bash Apple (and the idiot analysts who are freaking out and giving speculations that lower Apple stock price - kind of like a self-fulfilling prophecy that reinforces their self-fulfilling prophecy) don't bother to look at the fact that Apple sales have GROWN, they exceeded analyst expectations last quarter and sold more products than predicted....oh, and they gained MORE market share of the phone market. So, basically, Apple has sold MORE, made MORE money, and gained MORE market share. Before AND after that happened, the "analysts" keep freaking out, causing lower stock prices because Apple didn't consult with them to tell them what secret products they are working on to "make them feel better". WAH.
      Stormborn
    • Jesus...

      Is it still 1995? Apple is the most successful tech company on the planet and you are blithering about Apple being overpriced? Were you frozen in ice for the 15 years?
      His_Shadow
  • Apple is a high end niche company.

    As I sit here reading and writing on my Nexus 7, I am beginning to realize that Apple is fading back into a high end niche company again. This tablet does all I want for less then an IPad. Apple will continue to provide good products for a long time, but there are simply too many competitors with to many other price points and options for Apple to dominate in the markets that they once ruled. They dominated on the strength of being the first one's into new markets or simply creating new markets by making new innovative products, but as these markets mature no one company is going to be able to dominate all the various sub markets.
    littlemas2