“Usually, on days when Apple Inc. (AAPL) reports earnings, giddy investors have a chuckle about the company’s famously conservative forecasts and proceed to load up on the stock—confident that Apple’s closely guarded pipeline of new products will keep sales and profits on the rise. But in a reflection of the gloomy mood on Wall Street over the prospect of a recession, investors found little to laugh about in Apple’s latest forecast. After the company said earnings in the March quarter would come in 14% below analysts’ expectations, the share price fell more than 11%, to $137.93,” Peter Burrows reports for BusinessWeek.
“Yet on closer inspection, there are signs that Apple can not only weather an economic contraction but emerge stronger than ever. Most important is the strength of its Mac business. Sure, Apple sold a few million fewer iPods than analysts expected, but Mac sales were scorching—particularly the desktop iMac, whose sales grew 53% in a market that expanded just 10%,” Burrows reports.
Burrows reports, “There’s little question how Apple executives feel about the company’s prospects. During a conference call for analysts and shareholders, Chief Financial Officer Peter Oppenheimer said: “I couldn’t be more confident in what we’re doing.”
“Strength in the PC business is much more of a positive than slightly disappointing iPod sales are a negative… There’s a silver lining in the iPod sales numbers as well. While the 22.1 million units were 2 million to 3 million shy of consensus expectations, Apple met Wu’s revenue target for its famous MP3 line. That means the shortfall was mostly for Apple’s cheapest, least profitable product, the iPod Shuffle, says Wu. So while consumers normally opt for cheaper models in nervous economic times, Apple’s customers clearly see the value in the company’s swankiest products. That’s good news for Apple’s well-rehearsed iPod strategy: Bring out a headline-grabbing gizmo at a high price and spend the next few years milking demand by maintaining that price for new high-end models while bringing out cheaper models to reach thriftier shoppers,” Burrows reports.
Burrows reports, “Apple is likely far more prepared for an economic downdraft than most other tech companies. Sure, many consumers may put off purchases of the latest iPod or iPhone if the recession hits hard, but Mac sales should hold their own, says Harvard Professor David Yoffie: ‘Apple sells to the least price-sensitive part of the market. While no company is immune from a recession, Apple is a little less vulnerable.’ Needham & Co. analyst Charles Wolf puts it another way: ‘I think this is an outrageous buying opportunity. It’s not a cheap stock, but you’re getting a company that can grow at 25% a year for who knows how many years, at 25 times earnings. To me, that’s a steal—recession or no recession.'”
Much more in the full article here.
[Thanks to MacDailyNews Reader “PhillyMac” for the heads up.]