Apple: Fighting the battle that can’t be won

“When it comes to Apple, the company is producing quarterly revenue records basically every quarter now. Apple could show more than 20% growth in its current fiscal Q2, reporting revenues of more than $55 billion, and it might not be enough,” Bill Maurer writes for Seeking Alpha. “The company will probably forecast an acceleration of its revenue growth rate in fiscal Q3 thanks to the Apple Watch, and it might not be enough. Unfortunately, Apple might fall victim to the analyst community’s high hopes.”

“The Dollar Currency Index (“DCI”) has continued to soar, nearly topping 100 on Wednesday. When Apple provided guidance in late January, the DCI was just above 94. Management also detailed how some hedges were rolling off and thus the currency impact on revenues would be larger in fiscal Q2 than it was in fiscal Q1,” Maurer writes. “When Apple reported on January 27th, the DCI was up about 16.7% over the past twelve months. Thanks to the most recent rally, that number is now above 25%, about double the year over year gain when Apple’s latest quarter finished. Anyone that thinks this is a non-issue is clearly ignoring reality. But the reason why I am most concerned is in regards to a battle Apple can’t win, and that is one with the analyst community. Despite the dollar’s rally, which will further pressure Apple’s results, we continue to see current quarter estimates on the rise.”

“I would hate to see Apple report a great number, one that gets knocked down by currencies, that misses estimates because analysts were too optimistic,” Maurer writes. “As analyst estimates continue to rise, mostly for the current quarter, I get more and more worried about Apple missing, a battle it cannot win. The dollar is definitely going to have a major impact on Apple’s quarter, and I sure hope analysts start to take the currency issue into account. At the current time, Apple could report a revenue number that beats the top end of its own guidance, and that might not be enough to satisfy the street. I think some of these fears are starting to impact the stock, as we’ve seen a pullback of more than $10 from the recent 52-week high.”

Read more in the full article here.

“About 62% of Apple’s total revenue comes from overseas markets, making it vulnerable to currency headwinds,” ValueWalk reports. “Apple has just reported the biggest ever quarterly profit in history. The company sold a staggering 74.5 million iPhones, generating $74.6 billion in sales and $18 billion in profits for Q1, 2015. Apple CFO Luca Maestri said during the earnings call that its revenue would have been 4% higher in the crucial holiday quarter had the currency fluctuations not affected its results.”

“According to Ben Thompson of Stratechery, currency headwinds reduced Apple’s sales by $3.73 billion during the quarter. By comparison, Google’s net profit in Q3, 2014 was $2.81 billion,” ValueWalk reports. “That means Apple lost more money to currency headwinds than Google earned in a quarter. It speaks volumes about the mammoth size of Apple.”

Read more in the full article here.

MacDailyNews Note: Apple CFO, Luca Maestri during Apple’s Q115 Conference Call with analysts on January 27, 2015:

Obviously what we’ve seen during Q1 has been unprecedented movements in currencies. I would say during the course of the quarter the biggest impact came from the Japanese yen, the Russian ruble, but also from euro, Australian dollar, Canadian dollar. Our revenue growth during Q1 would have been 4 percentage points higher on a constant-currency basis. On a profitability standpoint, our hedging program partially mitigated the impact from the volatility in currencies.

As we look forward, and we look into particularly the March quarter, the foreign exchange headwinds will be stronger in Q2 than they were in Q1 for two main reasons. The first one is the fact that the US dollar has continued to appreciate against foreign currencies during the last few weeks. The other one is the fact that our existing hedges expire. They get replaced by new contracts at current levels, and therefore the protection that is provided to us by our hedging program diminishes over time.

What that means to us going forward for the March quarter is that revenue growth on a year-over-year basis in constant currency would be 5 points higher than what we are guiding to if it wasn’t for the FX movements. In terms of gross margins, and you know that we look at gross margins on a sequential basis, the gross margin percentage after the offset that we’re getting from the hedging program will be impacted by over 100 basis points.

Now having said that, we have factored the impact that I just described into the guidance that we provided to you. That’s where we are right now. Of course, as you look further out, we do not provide guidance past the March quarter. But it goes without saying that at current levels, again, those headwinds will continue to become stronger for the reason I explained earlier, that our hedges continue to expire, they get replaced by new hedging contracts at current levels, and there is the impact that we would see during the course of the year.

It goes without saying, strong US dollar has a negative impact on our international business. Having said all that, we have provided what we believe is very strong guidance for the March quarter. We remain very confident about the portfolio of products and services that we have in the market today, and we remain very confident in the pipeline of products and services that we have.


  1. Analysts are fighting a fictional battle, one which they can never win, what with their headwinds and mitigations and currency fluctuations and whatever. All the while Apple chugs along, crushing everything in whatever path they choose to stomp on. These d-bags somehow think they matter, but really, if they fixed someone’s plumbing or cut somebody’s grass, they would be more useful.

    1. I doubt if 99% of those dimwits could actually perform real work, and I sure wouldn’t want one working on my plumbing. How does such a worthless category of employment come about in the first place.

  2. Some analysts have recently raised their estimates, but the stock keeps plummeting. There is a complete and utter disconnect between the value of Apple and the rest of the market. It doesn’t matter if Apple misses estimates since all common sense regarding the multiple is completely meaningless. It also won’t matter if Apple crushes this quarter’s estimates as proven by last quarter’s historic beat and failed follow through of the stock.

    Some will argue and say the rest of the market is also down too. This is hogwash. Is the market down 9 percent recently? Was the market down 12 percent in January? Some say that the stock is always down after a reveal. This might be partially true, but there is always a run up. Was there a run up into this reveal? No, there was a sell off into the reveal.

    I wouldn’t be so upset with the poor action of the stock if Apple’s business model was failing, this is obviously not the case. Apple’s EPS growth is much higher than Google, Microsoft and the market in general, but the multiple is still much lower.

    At this point, Apple should relocate their home base to China, raise money on a Chinese exchange, payoff the current American stock, delist from the American exchanges and forbid American institutions from investing in Apple. I’m sure the Chinese will value the company correctly and reward investors for their faith.

    1. In other words, punish Wall Street by taking away their squeeze toy? Wouldn”t it be just as effective to buy back the remaining shares over the next four years and go private? Going Chinese seems a lot riskier.

      1. Over the last two and a half years their cash hoard has grown substantially, they are increasing dividends, they are continuing to buyback stock and EPS growth has averaged around 25 percent over the last year, but the stock is barely higher (decrease in share factored in). There is no sense being listed/based in America any longer if American institutions don’t believe in the company, especially after last quarter’s performance.

      2. i am not certain wall street can be punished.

        even if mr. apple delisted from american exchanges, moved their paper headquarters to some offshore locale and went to dax or ftse or some other exchange, the same people who thrive on wall street, the carl icahns and hedge funds can buy stocks on any exchange they want, so the manipulation could continue unabated.

        as for going private, then the rest of us lose out on our opportunity to benefit from apples dynamic wealth building power.

        things are goofed up, but at least we, as individual long term investors still benefit from what is a deeply corrupt system

  3. In doesn’t matter for a long-term investor. “Currency fluctuations” will head in the other direction at some point. Apple the company is not AAPL the stock. Apple the company will continue to execute its winning strategy, whether AAPL the stock is up 20% or down 20%.

  4. I’m a long term UK investor in AAPL and currency fluctuations affect me all the time.

    I’ve always pointed out to other UK potential investors that your investment depends on three variables. One is obviously how well Apple performs, the second is Wall Street’s perception of AAPL, while the third is how the U.S. dollar rises and falls against the G.B. pound.

    Sometimes gains in AAPL can be wiped out by dollar/pound currency fluctuations, other times a fall in AAPL can still produce a net gain and once in a while I get to buy AAPL when the exchange rate makes the dollar cheaper and then get to sell when the dollar later recovers ( or the pound falls ).

    AAPL is always a volatile stock, but when you add currency fluctuations too, it becomes much more unpredictable, but has nevertheless been an excellent investment.

    1. “About 62% of revenue comes from overseas”…

      An iPhone costs about 600 euro. Last summer, it was equivalent to $680 U.S.$. Today, it is actually less than $640, which makes it cheaper than in U.S. When dollar gains value against all other currencies, export revenue drops.

  5. It really is a waste of time reading anything produced by constant Apple Bear Bill. He has the ability to make everything look bearish when it comes to Apple. He is either paid by SameSung or the like or he is a big idiot.

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