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Wall Street says Apple (AAPL) will post $29 billion in sales this quarter. Revenue estimates for the companies that build Apple’s parts suggest that forecast is about $2 billion short.
For decades companies have refrained from giving the most optimistic guidance so they can exceed Wall Street forecasts, and the Cupertino (Calif.)-based maker of the iPhone and iPad has few if any peers for managing expectations. Apple, which has surpassed ExxonMobil (XOM) as the world’s most valuable company, worth $352.1 billion as of Sept. 6, topped analysts’ sales projections in 19 of the last 20 quarters, by 6.5 percent on average.
Apple said on July 19 that sales in the three months ended June 25 climbed 16 percent from the previous quarter, to $28.6 billion. Analysts were expecting revenue of $25 billion, a 1.4 percent increase.
“What surprises me is that analysts continue to allow Apple to lowball their estimates,” says Keith Goddard, president of Capital Advisors, which oversees $919 million, including Apple shares. Kristin Huguet, an Apple spokeswoman, declined to comment on why the company often tops sales predictions.
For the quarter ending this month, Apple’s guidance calls for sales to slump 12 percent from the previous quarter, to $25 billion, as it prepares to launch new products in the fall. Yet Apple’s suppliers have plenty of orders. Apple outsources the assembly of its products and computer chips to companies such as Foxconn Technology Group’s Hon Hai Precision Industry and Samsung Electronics. Sales at these and other suppliers accounting for 75 percent of Apple’s cost of goods sold are expected to rise 9.3 percent this quarter from last, data compiled by Bloomberg show.
That suggests revenues could come in much higher than predicted. Applying the suppliers’ growth rate to Apple would yield $31.2 billion in revenue for this quarter. In the last 10 years, Apple sales for the quarters ending in September grew an average of 17 percent from the three months that ended in June. “Analysts are in a tricky position,” says Alex Gauna, who covers Apple at JMP Securities. “In theory, the best information you’re going to get comes from the company. But in fact we know that information is not intended to be very helpful.”
Even so, analysts have not adjusted their numbers enough to keep pace with the company’s growth. Since 2006, Apple’s quarterly results have exceeded the average earnings forecast given by analysts three months earlier by an average of 30 percent, according to data compiled by Bloomberg. Yet analysts raised estimates by only 6 percent during the period. Wall Street firms are doing the best they can, according to Gene Munster, who follows Apple for Piper Jaffray. “Our goal is to get it right,” he says. “We factor in how conservative they typically are, and they still just blow it out of the water.”
The bottom line: Apple forecasts a 12 percent sales decline this quarter. Its chief suppliers’ sales may grow almost 10 percent. History says: Trust the suppliers.