Apple Inc. (AAPL) Earnings Preview: Q1 2014 Profit Up 1.7% On Strong IPhone Sales, Especially In China

 @SophieXSong on January 24 2014 8:31 AM
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    An Apple Macintosh SE computer logic board is seen at B&R Computer Service shop in San Diego, Calif., on Jan. 22, 2014. Reuters/Mike Blake
  • Apple CEO Tim Cook
    Apple Inc. CEO Timothy D. Cook Reuters
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Apple Inc. (NASDAQ:AAPL) is expected to post a 1.7 percent profit increase in the first quarter, on the strength of robust global iPhone sales, especially in China -- all before the China Mobile (NYSE:CHL) deal was established.

The Cupertino, Calif., company, which will report its first-fiscal-quarter results on Monday after markets close, is expected to record net income of $12.67 billion, or $14.05 per share, compared to $13.08 billion, or $13.81 per share, a year earlier. Revenue is projected to increase 5.4 percent, from $54.51 billion in the first quarter of the fiscal year of 2013, to $57.46 billion.

Excluding one-time items, analysts expect earnings per share of $14.09 compared with $13.81 in the first quarter of the last fiscal year.

Analysts' expectations are generally in line and closer to the upper range of the company’s earnings guidance of revenue between $55 and $58 billion. The company also expected at the time of its fiscal-fourth-quarter earnings release that gross margin for the first quarter will be between 36.5 percent and 37.5 percent, while analysts expect the figure to be 37.3 percent. This margin is slightly lower than it would have been, as Apple decided to defer roughly $900 million worth of revenue by bundling software for free with iPhones, iPads and Macs.

The optimistic financial projections rest partly on expectations of a strong quarter for iPhone sales. While Apple debuted its two new models -- 5s and 5c -- in late September, the first quarter of 2014 was the first full selling quarter for the new phones. In addition, for the first time, the new models went on sale in China as well as a number of other countries on the same day as they did in the United States, through China Telecom Corporation Limited (NYSE:CHA) and China Unicom Limited (NYSE:CHU), smaller domestic rivals to China Mobile.

Following the introduction of the new iPhones, Apple’s share of the Chinese smartphone market leaped to 12 percent in October, compared to just 3 percent in September before, making Apple the third-biggest smartphone company in China. Worldwide, the iPhone 5s became the best-selling phone in October.

According to a survey conducted by Fortune, consensus among 44 analysts puts the unit sales of iPhones for the first quarter at 55.3 million, up 16 percent from the 47.8 million units in the same quarter a year earlier. With iPhones accounting for about 60 percent of Apple’s revenue, strong iPhone sales are definitely going to reflect in strong financial numbers.

Similarly, Apple introduced the iPad Air in the first fiscal quarter (it shipped on Nov. 1) and the new iPad Mini, which shipped even later. Consensus collected by Fortune from 45 Apple analysts estimates that Apple sold 25 million iPads, up 10 percent from the same quarter a year earlier.

In December, Apple officially inked the long-awaited deal with China Mobile. Analysts differ in the number of additional iPhones China Mobile will move for Apple, with the optimistic expecting as many as 25 million and the cautious expecting around 5. But with iPhones available through all three of China’s state-owned mobile carriers, the only direction Apple’s China sales number can go is up, and 2014 is bound to be another great year for the company.

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