The Reviews Are In: Analyst Comment Roundup on Q2

Posted by: Arik Hesseldahl on April 24

A day after Apple reported its latest quarterly earnings, and for the most part beat expectations, except on its EPS forecast and gross margin outlook, Wall Street analyts have chimed in. Here’s a quick roundup from the research notes published today:

Gene Munster at PiperJaffray: “The key takeaway from Apple’s March quarter is that the Mac units grew at the highest year-on-year rates (units 51% and revenue 54%) in 17 years. Macs are the most meaningful category with the most potential and they are performing the best. Our back half of calendar year 2008 Mac growth rates decline to 12% year-on-year, leaving ample room for positive estimate revisions over the next 8 months. Mac growth is accelerating despite multiple quarters of strong growth, iPod sales are stabilizing with higher average selling prices due to the iPod touch, and the iPhone will be significant in the second half of the year with the release of new hardware and software.”

On the subject of the hotly discussed lower-than expected gross margin, he writes: “We believe the margin outlook may be viewed negatively by investors, who likely wanted to see more of Apple’s significant revenue upside trickle down to earnings. The bottom line, we believe the margin was negativity impacted by a higher mix of Mac Book Air, which we now believe carries a lower margin.”

Marc Kandel, Goldman Sachs: “We would buy AAPL here and be more aggressive if lower-than-expected gross margin causes stock weakness. Accelerating Mac share gains and revenue growth combined with an iPhone product cycle that should hit an inflection point in the second half — after the launch of the 3G iPhone and third party applications — differentiate Apple in a weaker demand environment. …Apple’s March quarter was, in many ways, the opposite of the past few quarters, with strong unit upside across the board but with gross margin below expectations and a relatively small earnings beat. … We think that all these issues are more noise than substance and are trumped by two very strong product cycles…”

Shaw Wu, American Technology Research: “Top-line revenue and units came in very strong with Macs, iPods, and iPhone at the upper-end or above consensus expectations. However, we believe what may cause some concern is that the revenue upside did not translate into a big EPS upside as we have seen in previous quarters. The gross margin was the culprit, coming in somewhat light at 32.9% vs. consensus at about 34% but above its guidance of 32%. We would like to note this is the least upside for gross margin vs. guidance and first miss vs. consensus view in quite some time. One may beg the question of whether AAPL has lost its unparalleled ability to capitalize on declining component prices. We believe it is too early to declare this, but we believe this could remain a lingering concern.”

Richard Gardner, Citigroup: “We had expected Apple to report significant 1CQ08 EPS upside based primarily on more favorable-than-expected component pricing during the quarter. The company did deliver significant EPS upside versus guidance and consensus, but the upside was driven entirely by higher-than-expected unit shipments and revenue in every product category (PCs, iPods, iPhone). Despite the lower-than-expected gross margin, revenue and unit upside is obviously a preferable outcome and makes us feel better about the 2CQ revenue outlook ahead of new product introductions in 3CQ. … We expect a steady stream of new products beginning on 9 June (the likely date for Steve Jobs’ keynote at the Worldwide Developers Conference) with a 3G iPhone and iPhone/iPod touch SDK, continuing with a refresh of the complete laptop line in July/August and concluding with a complete refresh of the iPod line in August/September.”

Matthew Kather, WR Hambrect: “We expect a steady stream of new products beginning on 9 June (the likely date for Steve Jobs’ keynote at the Worldwide Developers Conference) with a 3G iPhone and iPhone/iPod touch SDK, continuing with a refresh of the complete laptop line in July/August and concluding with a complete refresh of the iPod line in August/September.”

Andy Hargreaves, Pacific Crest Securities: “Apple’s Q2 sales grew faster than 30% in every geographical segment, while total revenue growth accelerated to 43% from 35% in Q1. We believe this validates Apple’s strong product momentum and global brand power.

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