--Apple's forecasts imply expected first-quarter revenue gain of 38%
--Upcoming results are the first reporting period to include iPhone 4S
--Analysts are forecasting, on average, quarterly iPhone sales of a little more than 30 million units
By Dan Gallagher
When Apple Inc. (AAPL) reports its December-quarter results Tuesday, the company's main challenge may be hitting a target of investor expectations that seem in a constant state of flux.
Not that anyone expects a bad period. Apple's own forecasts, known for being highly conservative, imply an expected revenue gain of 38% for the first fiscal quarter compared to the same period the previous year.
It will be the first reporting period to include the new iPhone 4S, which went on sale in October, as well as the first time the company has made one of its iPhone models available free of charge to consumers who sign a two-year wireless contract.
And the iPhone is expected to rule the quarter--and serve as a key metric watched by analysts, many of whom expect unit shipments of the device to come in between 30 million and 32 million for the period. The iPad will be another closely watched area, as the tablet device was likely a popular Christmas gift during the holiday shopping season, offset somewhat by the launch of the Kindle Fire from Amazon.com Inc. (AMZN).
"The critical number is going to be the iPhone number," said Gene Munster of Piper Jaffray, who recently lifted his own iPhone unit forecast from 26 million to 30 million.
The stock has been on a roller coaster over the last three months since Apple's last earnings report. The stock fell by 14% in the month following the results, which included a rare earnings miss for the company. The stock has since re-gained that ground--topping out at an all-time high of $431.37 late last week.
Apple shares were up 1.5% to $426.66 early Monday afternoon.
Noting that the iPhone 4S is essentially the same device as the iPhone 4 with a faster chip, Munster believes that Apple hitting or surpassing the 30 million unit mark for the quarter would support his thesis that more than 90% of iPhone customers plan to upgrade to newer models, as opposed to other brands of smartphones.
This would mean that the iPhone 5, which is expected to come this summer in a new form factor, could be a "monster upgrade," Munster said.
But Apple has to get through the next couple periods first and meet high expectations from investors and Wall Street. That was a problem for the company on its last earnings report in October, which included lower-than-expected sales of the iPhone, as customers held off on purchases while awaiting the launch of the 4S, after the quarter had closed.
Expectations for the December quarter are still generous, though Apple has beat Wall Street's earnings consensus by an average of 19% over the last eight quarters, according to data from FactSet Research.
Analysts are expecting earnings of $10.06 per share on revenue of $39 billion, according to FactSet estimates. The company earned $6.43 per share on revenue of $26.74 billion for the same period last year.
On average, analysts are expecting a little more than 30 million iPhones to ship in the quarter, with iPad shipments between 13 million and 14 million, on average. Mac unit shipments are expected to come in a little over 5 million for the period.
"We are expecting a very strong quarter from iPhone with upside to our 30 million unit estimate," wrote Maynard Um of UBS in a note to clients on Friday.
The iPad is a little more of a question mark. While the device has ruled the market for tablets since its first launch in 2010, it faced its first serious competitive threat in the December quarter from the Kindle Fire, a 7-inch tablet from Amazon that was priced at $200--about 60% below the cheapest iPad.
Amazon does not report its results for the quarter until Jan. 31, and the company typically does not break out sales data for its Kindle devices. Apple is widely expected to unveil an iPad 3 sometime in the next few weeks, and most analysts believe the device held up well under increasing competition.
"Twelve million units would reflect just an 8% unit growth for iPad [quarter-over-quarter] in the holiday quarter, which we believe is a relatively low hurdle for the company," Um wrote.
Toni Sacconaghi of Bernstein Research said the iPad may also have an effect on the company's forecast for the March period, depending on when the company launches the next version. The iPad 2 came out last year in early March, though Apple has announced no plans regarding the new device.
"We model iPad sales to be down 25% quarter-over-quarter on account of a potential iPad refresh in March; however, Apple could guide conservatively, particularly if -- like the iPhone4S -- the refresh takes place in April (or the end of March) rather than early March," Sacconaghi wrote in a report.
Analysts are currently projecting earnings of $8.02 per share on revenue of about $32 billion for the March quarter, according to Thomson Reuters.
-By Dan Gallagher; 415-439-6400; AskNewswires@dowjones.com
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