Apple (AAPL) Earnings Report Q1 2013 Preview: Can iPhone 5, iPad Mini Sales Help Poor Stock Shares Recover?

Analysis

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iPhone 5
Apple sold a record 47.8 million iPhones and 22.9 million iPads in Q1 2013, which ended Dec. 29, 2012. Apple's iPhone - a device that's shifted the mobile and app worlds into overdrive.

This Wednesday at 5 p.m. EST, Apple (Nasdaq: AAPL) CEO Tim Cook will get on the phone with investors to discuss his company's first quarter earnings for 2013.

Even though analysts expect Apple to report its best earnings yet -- besting a prior record quarter reported last January -- the Cupertino, Calif.-based tech giant may still have a difficult time slowing its slide on the stock market, a slide that began back in September.

One thing is certain: iOS still boasts the hottest family of consumer electronic devices around. Apple's latest generation of mobile products, consisting of a new family of iPods, the iPhone 5, iPad 4 and iPad Mini, have received great reviews and sold very well around the globe.

Yet, despite the impressive sales performance of Apple's products, its stock price has not kept pace in recent months. Apple's stock has been falling precipitously ever since mid-September, right around the unveiling of the highly anticipated iPhone 5, when shares peaked around $705 -- an all-time high for the 35-year-old computer company. In the three months since September, however, Apple shares have lost 20 percent of their value, and the stock continues to slip.

With reports of waning demand and cutbacks in production, it's possible that Apple's stock might weaken further in the aftermath of what is expected to be an extremely positive earnings reporter on Wednesday.

The Impact Of Analysts

Wall Street analysts are skittish folks. They can bullishly predict a company will cure cancer one day, and then lose faith in it the next; this ambivalence is definitely in play now when it comes to Apple.

Despite Apple's "unrepeatable" products and services, the company made a fair number of missteps in 2012: removing Google Maps, adding Apple Maps, not fixing Siri to make it perform like Google's Voice Search, the hiring and firing of several Apple executives, including the removal of long-time iOS chief Scott Forstall.

When Steve Jobs was alive, mistakes like these might be overlooked. Without Jobs -- without a visionary to reassure customers of these minor changes -- analysts and investors are prone to doubt Apple's outlook moving forward.

Here's another reason for analysts to worry: In addition to Apple's uncharacteristic mistakes last year -- its first year without Jobs -- the company's decision to release two full-sized iPads in the same year (upsetting many customers that purchased a third-generation iPad in March) might be a warning sign that Apple is compressing its product cycle.

Compressed product cycles won't affect Apple's overly hyped product launches -- the first day of a new iPhone or iPad will always be madness. They do, however, affect Apple's ability to keep the momentum going after those launches and sell iPhones and iPads after the hype has subsided.

Let's look at a few patterns: 

- The iPhone 3GS, released in June 2009, sold 5.2 million units in its debut quarter, 7.4 million in the September quarter, 8.7 million in the December quarter, and another 8.7 million in the quarter after that.

- The iPhone 4, released in June 2010, sold 14 million units in the September quarter, 16.2 million in the December Quarter and 18.6 million in the March 2011 quarter.

- With the iPhone 4S, released in October 2011 just one day prior to Steve Jobs' death, Apple managed to sell a whopping 37 million units in the December quarter -- a 120 percent jump from the last period -- but sales dropped over the next two quarters. Many expect last year's iPhone 5 to follow a similar pattern.

The consumer fear of obsolescence, particularly with Apple products (which aren't cheap, by the way), could be a big reason Apple's having trouble maintaining demand. But there's another factor, which Apple hasn't faced in some time, and that's competition.

Apple is no longer the only smartphone and tablet maker on the block. In 2012, Samsung won the smartphone battle with its Galaxy S3, and even though the iPad still has a strong lead on its competition, rival tablets like the Nexus 7 and Kindle Fire HD -- which are significantly cheaper than Apple's iPad and iPad Mini -- are slowly gaining ground on Apple.

But even if Apple spreads to other markets -- the two biggest rumors are wristwatches (or other wearable technology), and television set-tops -- analysts will still find failings somehow. If the service isn't complete, or even if an analyst feels Apple is focusing on too many projects at once (not very Jobs-like), Apple may never satisfy everyone's appetite.

Thanks to the last 10 years of innovation, from the iPod to the iPhone to the iPad, Apple has effectively set everyone's expectations sky-high, and that has its benefits, as well as its downsides. Apple never really cared much about what Wall Street thought, but many consumers do care, and changing attitudes may lead to a change in behaviors. With Apple stock plummeting in the last quarter like it did, it's possible that many consumers acted, or reacted, because of it.

Q1 2013 Earnings Predictions

Wednesday's Q1 2013 earnings report will be the first quarter to include sales from the iPhone 5, fifth-generation iPod Touch, seventh-generation iPod Nano, fourth-generation iPad, 13-inch Retina MacBook Pro, newly updated Mac Mini, redesigned iMac, and first-generation iPad Mini.

In comparison, it only took the release of the iPhone 4S, the iPad 2 and the iBooks 2 platform to achieve the most successful quarter in its history last year. In the quarter ended Dec. 31, 2011, Apple reported $46.3 billion in sales and $13.1 billion in profit. Its cash on hand at the time was  $17.5 billion.

Apple’s guidance for Q1 2013 earnings sets the table for $52 billion in revenue and earnings per diluted share of $11.75. Wall Street's expectations are a tad higher, predicting $54.6 billion in revenue on $13.34 earnings per share; Apple rarely falls below Wall Street's expectations, but did last quarter, reporting $8.2 billion on $8.67 a share, while Wall Street had hoped for a slightly higher $8.91 a share.

In the first quarter 2012, Apple sold 37 million iPhones, 15.4 million iPads and 5.2 million Mac computers. With new iPhones, iPads and Macs released in the last quarter -- and in more countries, no less -- Apple may easily top those sales figures, with upward of 50 million iPhones, 20 million iPads and 6 to 7 million Macs sold.

Apple’s most recent quarter, Q4 2012 ended Sept. 29, was a rare miss for Apple, one of its only earnings reports to fall below Wall Street’s estimates. In that quarter, Apple reported income of $8.2 billion or $8.67 a share, which was up from $6.62 billion ($7.05 a share) in the year-before period.  However, revenue was up 27 percent to $36 billion, with the vast majority of these sales coming from the iPhone and iPad.

Despite a disappointing fourth quarter, Apple still sold 26.9 million iPhones and 14 million iPads; Wall Street predicted sales of 25 million iPhones, but more than 17 million iPads.

However, Apple's misstep in the fourth quarter occurred primarily because the company was gearing up for a strong first quarter 2013. A record-breaking quarterly report for Apple could regain some value on Wall Street, and in this post-holiday period, which is known for a lull in new products, Apple needs all the good press and momentum it can get.

With Wall Street closed for Martin Luther King Jr. Day, Apple’s stock (Nasdaq: AAPL) currently sits at $500 a share, down from $542 earlier this month.

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