Wednesday, July 25, 2012

A huge miss for Apple, my cronies, and me

Apple's numbers came in yesterday, and if you are reading this, I'm sure you know what they are - My reaction in bits and pieces over the last 27 hours:

My initial reaction is one of shock.  I did not believe that reporting an E.P.S below $10 was possible for Q3 12.
The fallacy in my individual thinking is that I did not (again) factor in anywhere near enough “end of product cycle slowdown”  for the iPhones.  I have to re-evaluate my analysis, and put a much heavier weight on this when it happens again.  And with the guidance of 34b and $7.65, I can absolutely expect a post October launch of the iPhone 5.

The upside to the guidance being that low, is that we (I) can now manage a more realistic set of expectations.  This all points to a Q1 that will be incredible, and it presents an amazing buying opportunity for those of us that believe.

More perspective:  It seems as if Apple is content in being the “tortoise” to Androids “hare” in this race for global market share.  Long run, this will pay off for those of us that are patient, I believe.  With the eco-system in place, and the best products available, they will grow their marketshare slowly.  This might be a good strategy, it’s the quality of the products that will win this race.  I will admit to feeling some frustration over Apple being slow to launch their biggest revenue product in their portfolio.  Again the upside here is the build up of pent up demand, that Apple seems to always do.

On the surface, it appears that Samsung/Android has a leg up, but the “tortoise” approach could prove to be successful when looking long term…. more to come

Wednesday 5:20pm
It’s now been over 24 hrs since the earnings report, and given time to absorb the information, and I have deliberately not been reading blogs, articles, opinions, and reactions so that I can clear my mind of clutter and of others opinions.
I’m going over my models for Q4, Q1, Q2, and Q3, and have radically changed my views to the downside which doesn’t mean that I’ve turned into a bear, it’s more of coming down to earth, and realizing that Apple is going to move at their own pace, instead of everybody else’s pace, or even better, my expected pace.  The bottom line is they are still growing.  The other bottom line is Q1 WILL be a monster quarter. 
Apple’s guidance was so low, that I’m moving my EPS down to $9.00 for Q4 - Yes - the 3rd sequential decline in a row, but 20% YOY increase.  In Q1 I’m staying with 22.50 EPS, but I’m going to model the same percentage sequential declines in EPS in 2013, that we are experiencing now.  I’m expecting a yearly EPS at the end of Q3 of $61 and a PE of 14 with a new price target of $854 / share on Sept 1 2013.
This is far lower than my previous model, and represents my radical shift in my mindset of what was once over exuberant, to now just plain bullish on the company and the stock.