APPLE, THE TULIP BULBS OF THE 21ST CENTURY

When this baby starts to tank all the markets will shit their collective beds.

It’s out of control speculation.

And in Holland it caused a monstrous collapse.

You remember that story, right? You can skip to the section titled, “Mackay’s Madness of Crowds.”

What I found funny was that when the collapse came it was in a place called “Haarlem.” So fitting given the collapse of our own “Harlem.”

apple
AAPL has dominated price action in The Dow in 2017 (accounting for almost 20% of the index’s 1100 point move) as the tech behemoth has powered ahead almost 30% this year (all while 2017 earnings expectations have limped lower). So while expectations are for low iPhone sales (pent up iPhone 8 demand) and lower-than-average reaction priced into options, the question is – just how low is the bar for AAPL to get a pass here?

Apple is scheduled to report earnings after the bell on Tuesday with expectations for earnings of USD 2.02 per share on revenue of approximately USD 53bn. It would appear that the bar for 2017, 2018, and even 2019 earnings expectations are pretty low…

A lot of focus will also be on Apple’s cash pile which is now almost USD 250bn. It is expected that they will conduct another share buyback and increase their dividends. A week ago, US President Trump announced his tax plans, which included a “one­time tax on trillions of dollars held overseas”. This repatriation tax may make it easier for Apple to move cash held overseas back to the US and so they might hint at plans for the cash if the tax plans come to fruition.

ESTIMATES & FORECASTS:

2Q EPS est. $2.02 (range $1.91 to $2.14)
2Q rev. est. $53.1b (range $51.7b to $54.7b); forecast on Jan. 31 of $51.5b-$53.5b
2Q gross margin est. 38.7%; forecast 38%-39%
3Q rev. est. $45.7b
3Q gross margin est. 38.3%

IPHONE:

As has become customary, investors will be focused on iPhone sales. Analysts project 52 million units were sold in the quarter, a marked drop from the record 78.3 million in the Christmas quarter, which is when sales of the smartphone usually peak.

The decline would slightly exceed the trends of recent years, which indicates growing expectations for the latest release of the company’s flagship product this year, marking the 10th anniversary of the iPhone’s launch.

Markets will be looking for comments on Apple’s guidance with next quarter sales expected to slow in anticipation of the iPhone 8, which is scheduled to be released in Autumn 2017.

2Q unit est. 51.4m (5 estimates compiled by Bloomberg News)
2Q ASP est. $666 (5 estimates)
3Q unit est. 42.0m (3 estimates)
3Q ASP est. $629 (3 estimates)

ANALYSTS:

Mizuho (buy): 3Q forecast may be “modestly below” consensus given potential for a pause in iPhone demand before a late-year product launch

UBS (buy): A survey from 451 Research in March of more than 4,000 North American consumers finds near-term iPhone demand soft and raises a “cautionary flag,” UBS analyst Steven Milunovich writes in note – Shows smartphone buying intent for the next 90 days fell to a nine-year low, as did Apple’s share of these planned buyers

Piper Jaffray (overweight): 2Q results and 3Q forecast expected to be relatively in-line with estimates – Any unexpected “hiccups” in results will probably be overlooked as investors focus on next generation iPhone and strong trajectory for services revenue

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