Samsung Guidance Changes Apple Earnings Battle Plan

Jan 24 2014, 11:33am CST | by

Apple will report earnings after the market close on Monday January 27.  My battle plan has changed after Samsung just provided weak guidance.

Fourth quarter results for Samsung were mostly in line. Earnings came at 8.3 trillion won and revenues came at 59.7 trillion won.  In Seoul South Korea, Samsung shares traded up 1.2%.  Of concern is that for 2014 Samsung expects competition to intensify and sees weaker demand for mobile devices in the current quarter.

The increased competition Samsung sees is mostly coming from Apple and Lenovo (LNVGF).  My read of Samsung report is that it is likely good for Apple in the very short-term but bad for Apple in the medium-term.

For Apple, average Q1 analysts’ estimate is $14.09; the low estimate is $13.49 and the high is $15.24.  For revenue, the average analysts’ estimate for revenue is $57.46 billion; the low estimate is $55.93 billion and the high estimate is $59.88 billion.

More than the earnings, the three critical numbers to look for are number of iPhone sales, gross margins, and any indication of China Mobile iPhone sales.

iPhone sales numbers are important because even though Apple sells many products, iPhones account for about three quarters of profits.  Estimates of iPhone sales hover around 55 million units.  Regarding China Mobile, if my information from sources in China is correct, the street will be disappointed.  Apple may simply choose not to divulge any data about China Mobile sales.

The big potential surprise will be if Apple announces an additional stock buyback.  Activist investor Carl Icahn has been demanding $50 billion of additional share repurchases.

Apple usually does not announce new products with earnings, but the possibility of an indication of new products cannot be ruled out. If Apple announces a major stock buyback or gives indication of new products in a new category, Apple stock can easily move to the range of $610 to $620.  This will been an opportunity to lighten up on an Apple position.

If the report is in line, Apple stock is likely to stay range bound in the zone of $535 to $565.

If there is a big miss in iPhone sales, or gross margins are significantly lower than 36.5%, expect a sell-off to about $500.  Such a sell-off is likely to be a buying opportunity for the long-term investor.

Follow me here, write me at Nigam@TheAroraReport.com or find me at The Arora Report

Disclosure: Subscribers to The Arora Report have a long position in Apple.

Source: Forbes Business

 
 

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