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Tuesday, December 04, 2007, 07:00 am PT (10:00 am ET)

Apple to beat bullish December quarter guidance after all - analyst

Investment firm American Technology Research, which in October waged concern that Apple may have been too aggressive in its outlook for the December quarter, says a new round of channel checks suggest the company will instead beat its guidance once again.

"Well, it's looking like Apple's most optimistic guidance in 8 quarters is turning out to be conservative after all," analyst Shaw Wu advised clients in a research note Tuesday. "Back in October, we had concerns that Apple may have been too aggressive in its outlook, but our recent checks with supply chain sources lead us to believe Apple is positioned to deliver upside."

In particular, Wu pointed to source reports indicating that iPod sales are tracking ahead of expectations with an acceleration in "fat boy" nanos and iPod touch more than offsetting slower growth in iPod shuffle and iPod classic. As a result, he raised his iPod unit forecast from 24 million to 25 million for the three-month period ending December, which compares to consensus estimates on Wall Street of approximately 23.2 million.

Also, the analyst said sources continue to report strength in Mac sales driven by Mac OS X Leopard and switchers from Windows PCs. Therefore, he remains comfortable with his current forecast of 2.3 million Macs versus consensus estimates of approximately 2.2 million.

On the other hand, Wu informed clients that iPhone sales appear to be tracking in-line to slightly below the consensus view of 2 million to 2.1 million units.

"It appears Europe's ramp is less robust than expected due to high pricing and customer service snags (similar to what happened with AT&T initially) offset by better than expected strength in the USA," he wrote. "We believe Apple may need to cut iPhone prices to accelerate sales."

Still, the uptick in Mac and iPod sales, along with favorable high-end product mixes and component cost, were enough to compel the analyst to raise his estimates on the Cupertino-based company once again.

For the current December quarter, Wu now expects Apple to earn $1.63 per share on revenues of $9.4 billion, up from $1.50 and $9.2 billion. This compares to Apple's own stated guidance of $1.42 in per share earnings on sales of $9.2 billion, and consensus estimates of $1.53 per share on $9.3 billion.

"In addition, with a favorable product mix towards the high-end and our checks of component pricing looking more favorable than expected, we are now modeling a gross margin of 33 percent (from 32.1 percent) versus guidance of 31 percent," he wrote.

For all of fiscal 2008 — which ends next September — Wu is modeling for earnings of $5.10 per share on revenues of $30.8 billion, up from $5.00 and $30.4 billion. His fiscal 2009 model estimates earnings of $6.10 per share on sales of $35.7 billion.

"We believe favorable component pricing is likely to benefit Apple over the next couple of quarters as we enter a seasonally weaker first half of 2008," he wrote. "In addition, we believe iPod touch and iPod nano have some staying power and are likely to experience strong sales beyond the December quarter."

The analyst maintained his Buy rating and $210 price target on shares of Apple.