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Apple Q3 preview: analysts place bets ahead of earnings

Apple is set to report earnings for its fiscal third quarter after the close of regular hours trading this afternoon. Analysts polled by Thomson Financial expect the company to post earnings of $1.08 on $7.37 billion in revenue, fueled by sales of 2.2 million Macs, 10 million iPods and about 700,000 iPhones.

Despite the general bearish feel going around on Wall Street, the “whisper numbers” have rose as high as $1.11 on $7.45 billion in revenue. In mid-June, I published my initial earnings forecast for Apple’s fiscal third quarter, but have made some revisions to those estimates in light of recently released data on Macintosh sales by the Gartner Group.

I am now looking for Apple to record approximately $1.20 in EPS on $7.720 billion in revenue. I expect Apple to sell 2.54 million Macs, 10.5 million iPods and about 700,000 iPhones. I expect gross margins to rise to 34%, operating expenses to rise to $1.225 billion, and OI&E to rise to $165 million. I expect Apple to post net income of $1.08 billion after taxes of $485 million.

In terms of the revenue breakdown from Apple’s primary operations, I am looking for Apple to produce $3.725 billion in revenue from Mac sales (2.54 million Macs at $1,466.43 ASP), $1.785 billion in iPod sales (10.5 million iPods at $170 ASP), and a total of about $2.2 billion derived from its other primary operations (this includes revenue Apple recognizes through its other music related products and services, iPhone and related products & services, peripherals & other hardware, and software, service and other sales). The table below compares my overall estimates to Apple’s guidance.

Third Quarter Estimates

Segment Information & Product Summary

Macintosh Sales: $3.725 billion
iPods: $1.785 billion
Other Music Related Products & Services: $810 million
iPhone: $400 million
Peripherals: $420 million
Software: $580 million
Total Revenue: $7.72 billion

Below are my third quarter estimates compared to the latest estimates on file from several of the more prominent Wall Street analysts covering Apple.

Third Quarter Estimates

My Estimates Compared to Analyst Estimates Last Quarter (Q2 2008)

The table below compares my earnings forecast with some of the top analyst forecasts from last quarter.  The numbers highlighted in “blue” designate the closest estimate to Apple’s actual report whereas the numbers highlighted in “red” designate the estimate which was furthest from Apple’s actual report. 

Third Quarter Estimates

Katy Huberty of Morgan Stanley missed on four out of the six major areas of prediction last quarter, shorting revenue by almost a cool billion ($815 million).

Alternatively, Mike Abramsky of RBC Capital is really starting to make a name for himself as one of the better analysts covering Apple. He was the closest out of Wall Street analyst in predicting revenue, iPods and Mac sales last quarter. He also recently made the excellent prediction that Apple would sell about 1 million 3G iPhones on opening weekend.

Andy Zaky is an AppleInsider contributor and the founder and author of Bullish Cross, an online publication that provides in-depth analysis of Apple's financial health.

Disclosure: Andy owns long term 2009 and 2010 call options in Apple. The information contained in this post is not to be taken as either an investment or trading recommendation, and serious traders or investors should consult with their own professional financial advisors before acting on any thoughts expressed in this publication.