Oppenheimer: Supply Hiccup Creates Apple Opportunity

Posted by: Arik Hesseldahl on October 16

Oppenheimer and Co. analyst Yair Renner has an interesting research note on Apple today in which he advises his clients to “keep some powder dry” in order buy Apple stock on a short-term weakness immediately after the company reports earnings on Oct. 19.

He writes that Apple could report revenues that are inline with the $9.2 billion consensus estimate of analysts, or “slightly disappointing.” He suggests keeping some money handy to buy some share on a pullback on the price he says may occur immediately after the earnings release hits the wires.

What’s the trouble? Yes, iPhone unit sales are thought to be ahead of many estimates, including his own guess of 6 million units, but troubles with component supply “may have prevented Apple from fully meeting demand” in the quarter, he writes.

A short-term drop ahead of a “potentially gargantuan December quarter for the iPhone” plus better Mac sales, and the expected early-2010 announcement of the long-rumored tablet device all add up to a buying opportunity, Renner says. More after the jump.

About the component supply issue. First, Renner is the second analyst in as many days to discuss it, though Renner writes that whatever problem there was seems have since been solved. The first sign of trouble came on Sept. 9 when Apple implied that about 3.5 million iPhones had been sold with 21 days left in the quarter. Checks following that event, he writes, showed the iPhone 3GS sold out in many markets. "Something was clearly preventing Apple from shipping to demand," he writes.

Next he says that more recent checks suggest the supply constraints have been solved. But it's difficult to assess when the bottleneck was fixed, and thus tricky to guess how many more iPhones were sold during the quarter. He thinks the consensus estimate that Apple shipped another 3.5 million may turn out to be too aggressive.

With demand still strong, and supply problems seemingly solved, December could turn out to be, he writes, "a substantial catch-up month," and that his prior assumption that Apple will sell 8 million units during the holiday period, he writes, could prove conservative, especially given the expanding universe of wireless carriers who offer the iPhone around the world.

Renner is a little less bullish on Mac sales. He thinks unit sales should come inline with the consensus estimates in the 2.7 to 2.8 million range, and that there's little potential for upside there. The reason: Consistent rumor chatter about new Macs and and MacBooks will have caused some people who might have bought a Mac during the September quarter to hold off and wait for an expected refresh in the December quarter. But he says Mac sales growth in the December quarter will be impressive.

Finally Renner says he expects Apple to "significantly outpace" estimates on its gross margin. A higher sales mix in favor of the iPhone and strong software sales will put some serious fuel in the tank, he says. Gross margin, a key measure of a company's profitability, was 36.3% last quarter, and 34.7% a year ago. He estimates it at 37.3%, but says it could go even higher.

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