« Apple 1Q08 Preview | Main | Apple: Not Good Enough For This Stock »

January 22, 2008

Best Case For Apple

I’ll be covering Apple’s earnings call after the close. Here is my preview. I decided to look at aggressive assumptions to see where a best case scenario might be for the December quarter. Since the stock needs both a substantial beat and decent guidance I wanted to see what the beat might look like.

Here are the assumptions I used: (1) 2.5 million Macs sold with ASPS up about $75 sequentially, (2) 25 million iPods with ASPs up to $175 vs. $163 last year, 2.5 million iPhones shipped generating $315 million in revenue, a 30% increase in all else driven by Leopard sales, and a 100 basis point sequential uptick in gross margins.

These assumptions lead to revenue of $9.85 billion and EPS of $1.88 versus the current high estimates of $9.96 billion and $1.77....

....With the exception of the iPhone revenue I actually think my assumptions are quite achievable. They are consistent with demand trends in the quarter and the ASPs are similar directionally from prior December quarters. The one big swing factor is gross margin. Each 100 basis point swing is worth 7-8 cents. My thinking is that Macs and Leopard gained in the mix from the September quarter and component costs were pretty similar. This would add up to margin expansion but in the last two December quarters gross margins fell sequentially.

Given the state of the market, there may be a little more riding on Apple that usual. I hope my preview and this note help.

Posted by Steve Birenberg at January 22, 2008 10:18 AM in AAPL