G20

At least we get to put the health care debate on hold for 48 hours while the big guys (not Bush) tackle the world's problems.



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The accounting change (which determines when Apple can recognize revenue on iPhones and Apple TV) that I wrote about on Sept. 17 was approved last night.

According to Morgan Stanley, Apple's CY2010 revenue and earnings estimates go up by 11% and 21% respectively. As I wrote in the earlier post, in an efficient market this would not move the stock. I might be giving the market too much credit.


@

Apple - Not This Basket

I wouldn't bet on that Apple right there -->.

I also wouldn't bet on Apple's stock getting a material boost from an accounting change in the works.

According to many, Apple's as-reported quarterly earnings per share will show a material pop if said accounting change is enacted. Apple currently books iPhone revenue over the life of the subscriber contract, not as a one-time sale. Since the phone buyer is a customer of the carrier and not Apple, that seems wrong from the get go. In any case, changing the accounting would pull forward earnings as reported, not change them over the life of the phone.

I'd like to think that the market has figured out what the real returns available to common shareholders are. Maybe not.

Apple's stock has gone up almost every day for the last seven months. Even though I still like it, don't put all your eggs in the wrong basket.

Thursday Earnings etc.

• JP Morgan numbers will be out soon and I'd bet they're going to be good
• IDC data indicate that Apple Mac shipments in June were well ahead of estimates
• BofA and Citi have secret deals with the government? On the Day Hank Paulson gets grilled? He is going under the bus
• China's GDP grew 7.9% in the 2nd quarter. Better than expected and better than ours. They must have directed their stimulus money at actual stimulus

Google and IBM are reporting tonight. The shorts have been trying hard to spook investors on Google's quarter. It was probably good. On IBM, in an up market, even their good news usually isn't good enough.

I'm hearing that NOBODY (investors I mean) is at Semicon West, the semi equipment trade show that analysts actually attend. The rally can probably continue is chip equipment if people aren't over thinking it.

Futures are kind of flat. JP Morgan and Nokia will probably set the tone this morning.

Edit:

JP Morgan is a beat top and bottom. Should be good enough.

Nokia - the quarter was OK but the margin guide down for the rest of the year is very disappointing. Nokia sells over 1.1 million phones per day but their high end offerings can't compete with RIMM and Apple.

Apple again

If your average tech stock joined a gym and went every day at 5:30 am, it would be so it could look like this chart right over here --->. That's an Apple 2-year.

Pretty triple bottom.

The only thing that would make that chart nicer would be if the stock were already higher, but then the stock would already be higher.

People who know seem to think that this market is overbought short-term. We're down so far I don't think it matters. Apple is coming off a couple of tough Mac quarters, but that's nothing that a good global virus couldn't reverse. If you want to own tech, Apple is a decent place to be.

Interesting Test

Ben Reitzes is the best computer hardware analyst in the world. He's now writing research at Barclay's since Lehman pulled the chute.

I haven't seen the report but Eric Savitz at Barron's online details Ben's estimate cuts on Apple - apparently all driven by economic weakness.

Ben is modeling iPhone units down big sequentially in the December quarter (5 million units vs. 6.2 in the September quarter). Down sequentially in the December quarter for any consumer-related product is bad, recession or not. Especially a hot one. Ben is also modeling down earnings for fiscal 2009. Ugh.

If earnings are down, it will be interesting to see whether the multiple gets crushed. If it does the stock probably won't work for a while. It's also possible that investors desperate for growth will look through the next few quarters.

Of course, earnings might not be down. Apple has been delivering for a while now.

Apple Keeps Doing It

I am not talking about innovating, or executing, or inspiring, or entertaining.

They keep giving disappointing guidance. It's kind of stupid in the grand scheme of things.

The quarter that Apple reported last night was fine. Revenue grew 38%, Mac sales grew 41%, margins were good. Investors should be happy. Instead, Apple chooses to give guidance, and usually uses its guidance as a tool for keeping investor expectations at a reasonable level. Either that or they always think that business is going to suck next quarter.

The stock traded down 11% in the aftermarket last night, and this morning we have sound bites like to following:

"But Apple's projections in the current period left analysts wondering about continued Mac momentum..."

""The stock is plagued by high expectations," said Shaw Wu, an analyst for American Technology Research..."

"The company also told Wall Street analysts to expect lower gross margins and made a conservative sales estimate for the final quarter of the 2008 fiscal year..."

High-octane stocks are usually volatile around quarterly reporting, and volatility in itself is not a terrible thing. If you were looking for an entry point into Apple, today could be it.

I'm wondering whether Apple should even bother giving guidance. Lots of high-quality companies don't, and they could avoid the following main street conversation that will be happening at every Schwab office today:

Ed: "Wow, Apple is down 10%."
Sam: "Did they report earning last night?"
Ed: "Yeah, they must have missed."
Sam: "Do you think the Yankees have a chance without Posada?"

Progress Away From Mortgages?

The 3G iPhone is launching this morning and there seem to be a lot of genuinely excited people waiting to get one. Upwards earnings revisions driven by new product cycles are the best kind.

GE's quarter wasn't a disaster and the infrastructure business was strong. Absent a global recession, they look fine.

Citigroup is dumping its German retail operations in exchange for some much-needed capital.

BUD may agree to be taken over after all - after all of this hand wringing.

The futures are getting hammered, though. Oil is up again and nobody knows what to do about FNE/FNM.


long BUD