Why did Apple give such ‘low’ guidance?

“Apple (AAPL) is notorious for one thing: giving lowered guidance to their profits and revenues,” Kenneth Hartog writes for Seeking Alpha. “Why do they keep doing this every single quarter and end up being wrong every single quarter? Why the particularly lowered guidance this quarter?”

MacDailyNews Note: Apple guided below analysts’ expectations, but Apple’s Q2 08 guidance of “revenue of about $6.8 billion,” is 29.3% over Apple’s Q2 07 posted revenue of $5.26 billion. In other words, Apple expects their business to grow 29.3% year-over-year in Q2 08.

“I will answer all of these questions in one simple and quick answer: Money. Why would they lower guidance to make more money? Well, in my opinion, the people who work for Apple have no incentive to drive the price of the stock higher in the short term. In fact, their incentive is to drive the stock lower in the short term. Why? The people who work at the company are being paid in options. If you schedule your strike price for options to be set on a particular day, you are incentivized to have the stock as low as possible on that particular day. The only day that one wants the price to be high is when one sells,” Hartog writes. “Are any Apple insiders selling? Very few.”

Hartog writes, “In other words, and this is the main point, I that that what they are doing is driving the stock lower, essentially buying via their options plans, and then waiting for the stock to go higher to its ‘correct’ price. Brilliant. How could you not love such a creative company?”

Full article here.

28 Comments

  1. How could you not love such a creative company?

    Exactly. As long as Apple keeps their brilliant strategies, amazingly brilliant and sexy hardware designs, and first class software (i.e. continues to be themselves), they’ve got a life long customer in me.

  2. Apple no doubt predict low because market conditions aside, whatever they predict the “analysts” come up with some higher expecation then get disappointed when the predictions are exceeded but their expectations aren’t. If Apple had predicted the results they just got, think what the analysts would have been expecting. Apple’s share price would probably be under a $100 by now.

  3. That’s absurd. That is NOT what their CFO is doing. He’s just following generally conservative GAAP rules. It is common for companies to predict modest growth in the next quarter, and then they try to beat that estimate. The ‘problem’ for Apple’s suits, though, is that the company is in a wild growth phase right now, and has been for the last 2 years. They still need to follow GAAP. No, the problem isn’t Apple’s estimates, it’s that Wall Street analysts are irrationally exuberant wankers. (Except when they aren’t, at which point they become irrationally pessimistic wankers.)

  4. This is pure B.S. Apple is conservative in their guidance because their whole philosophy is to under-promise and over-deliver. That applies to the product side as well as the financial side. And that’s the best way to manage a company. The current price is a huge opportunity to buy AAPL at bargain rates and make lots of $$$.

  5. Uh…MDN regarding your comment -where does it end and then you pick up the article again???? Are you saying the stuff or somebody else and you are just copying it?
    ———————–

    And what this guy is suggesting is illegal. Insider type trading sheninigans.

    ———————–
    Apple guides lower because they no things we don´t – like preorders for MBA and other products are probably way off what other new Apple products did….plus there is probably going to be an Apple iPhone price cut in the next month or so.

  6. Let me cut to the chase: I think that giving forward-looking guidance should be disallowed or made illegal. It’s patently ridiculous, putting a company on the spot to project to the penny what future earnings will be. To me, analysts demanding guidance shows how lazy and inept they are. It’s their job to estimate a company’s earnings and to be accountable for their projections. Instead, they force their will on a company and hold them accountable for what they should be doing themselves.

    My specific opinion of Wall Street analysts is unprintable.

  7. Not only is it fun to discuss among ourselves the pride we have for Apple products, but it’s comforting to hear so many rational responses to an irrational market.

    The sun will also rise tomorrow.

    I’m in AAPL long. For the long haul.

    This is a blip.

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.