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What to expect from Apple's Q2 results today

Expectations are low for this quarter anyway but history proves otherwise

By , Network World
April 23, 2013 09:05 AM ET

Network World - Speculation is rife that when Apple announces its fiscal second quarter results today at 5 pm EDT, its revenue, profits, gross margin, and earnings per share or some combination of them will be less than expected, or less than they should be, or both.

Unless Apple surprises the industry watchers, the results will likely set off a litany of familiar criticisms - Apple is failing to innovate, being too secretive, not being concerned enough with quality, arrogant, losing out to more innovative competitors. And it could trigger a further drop in Apple's stock price, which reached a peak of $705.07 in the past 12 months but closed yesterday at $398.67

But the short-term focus on unit sales, revenue, profits and margins can lose sight of much else: the larger context of Apple's (and other tech companies) historic ups and downs, Apple's strengths in designing, maintaining, and ultimately replacing popular brands, and its unique corporate character and structure focused on creating better products.

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Some analysts currently are forecasting that Apple will sell 35 million to 38 million of its high-margin iPhones in the January-March quarter, about the same or 1% to 8% above the same quarter one year ago

Apple's guidance for the January-March second fiscal quarter is for revenues of between $41 billion and $43 billion, slightly above the $39.2 billion in the year ago quarter, and well below the $54.5 billion of fiscal 2013 Q1. For almost the first time, the consensus by both independent and professional stock analysts is very close to Apple's guidance. The trend is clear in these two charts, comparing revenue and earnings forecasts with actual results over the last 12 quarters, pulled together by Philip Elmer-Dewitt, editor of Fortune's Apple 2.0 blog.

As DeWitt notes, Apple's guidance has been much closer to actual revenues than the far more optimistic expectations by both professional stock analysts and independent Apple watchers and bloggers.

"The forecasts from the 61 analysts we polled -- 38 professionals and 23 amateurs -- are as tightly packed as we've ever seen them," DeWitt writes. "The consensus among the pros is that Apple will report sales of $42.41 billion; the indies are at $42.9 billion. The median estimate is $42.7 billion, up 9% from last year's $39.2 billion." [See DeWitt's full blogpost.] 

Apple for the first time declined to offer guidance on earnings per share. The professionals in DeWitt's survey together yield an average earnings estimate of $10.01 per share, or 19% below last year's $12.30. The independents' average estimate is $10.55, or a 14% drop year over year. The median EPS estimate is $10.10, a drop of 18%.

One analyst, Ben Reitzes with Barclays Bank's investment banking division, is already looking to the next quarter, and not seeing much of an improvement. "[W]e expect Apple to provide guidance below consensus for the June quarter with regard to revenue and gross margins," he writes in recent report. Reitzes reiterated Barclay's view that Apple needs to be, and will be, more open with investors about a range of issues, including its gross margin targets (since a small change in gross margin has an outsized impact on earnings per share), returning more cash to investors, and product plans.

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