On Apple and Its (Enviable) Problems
By YUKARI IWATANI KANE
Oh, to have Apple Inc.'s kind of problem. While consumer confidence remains weak, the strength of Apple's quarterly results Monday will depend largely on how fast it has been able to meet demand for products such as iPhones and iPads.
Despite complaints about the iPhone 4's antenna, consumer demand for the smartphone has been insatiable since its late-June launch. The iPad not only has kept up strong sales, but it also has helped whet users' appetite for Macintosh computers. IPod sales have been on the decline, but the debut of new versions of the mobile players last month likely gave them a boost.
Analysts on average expect earnings for Apple's fiscal fourth quarter to rise 46.2%, compared with earnings a year ago adjusted for an accounting change, to $4.05 a share, according to Thomson Reuters. Revenue is expected to jump 54% to $18.8 billion. "It's going to be a blowout," says Shaw Wu, a Kaufman Brothers analyst.
This isn't to say investors are without concerns. Wall Street expects Apple to have sold about 11 million iPhones and 4.7 million iPads during the quarter. Apple has been building production capacity to fix supply constraints; whether it can continue to meet demand is an open question as distribution expands to more retailers world-wide.
Success also comes at a price. Apple's gross margin, at 39.1% in the June quarter, was one of the industry's highest. Yet in a July conference call, Apple said iPhone 4 and iPad sales would be negative for the margin because of their high cost structure. That is especially true for the iPad. And the company has new challengers: The Google Inc.-backed Android smartphone operating system has gained more market share than Apple has.
There is also Apple's cash hoard—it had $45.8 billion in cash and securities in June. Given current super-low rates, Apple can't make much sitting in cash. That has some investors hankering for a dividend.
Plus, the surge in Apple's share price past $300 last week sets a high expectations bar.
For now, though, such matters are small worries. Even if the company sticks to its usual conservatism in forecasting the current quarter, investors are likely to remain as enthusiastic as Apple's own customers.
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