Apple beat Wall Street expectations and left analysts satisfied with its September quarter, though market watchers are already more focused on anticipated blockbuster sales of new iPhone and iPad models in the current holiday quarter.
The stronger-than-expected September quarter was led by record iPhone sales of 33.8 million for the three-month period, earning the company $7.5 billion in profit on revenues of $37.5 billion. After Apple announced its results, Wall Street analysts provided their reactions, and a summary of those thoughts follows.
Apple's revenue growth trajectory is surprising to the upside, analyst Katy Huberty said. She has adjusted her estimates and now models for Apple to grow revenue 7.5 percent in calendar year 2014, up from her previous prediction of 6 percent.
Huberty was also encouraged by what she interpreted as a "bullish" tone from Apple's management during their quarterly earnings conference call on Monday.
"Whereas two quarters ago Apple CEO Tim Cook set the tone by acknowledging Apple had not delivered on everyone's expectations, yesterday's call focused on confidence in the future including a strong holiday season," she wrote. "Management continues to highlight innovation both in current and new product categories, examples of which could include iWatch and iTV."
Analyst Mark Moskowitz recommends that investors take advantage of any near-term losses in Apple's share price. He expects AAPL to "find firmer ground in the coming days," following a strong September quarter and with expectations of a huge holiday.
Moskowitz noted that Apple guided revenue of between $55 billion and $58 billion for the December quarter, with gross margins of between 36.5 percent and 37.5 percent. Those numbers are slightly higher than previous consensus estimates of $55.5 billion in revenue and margins at 37 percent.
"We think the stage has been set for Apple to deliver a beat-and-raise if the company can avert the prolonged supply constraints that negatively impacted last year's holiday quarter," he said.
Apple's product cycles are now kicking into gear, analyst Chris Whitmore said. He expects strong holiday demand for the company's new products, and suspects that its guidance for the December quarter will prove conservative.
Beyond that, he expects multiple catalysts for Apple over the next 12 to 18 months. They include a sixth-generation iPhone, expansion with China Mobile, and further geographic expansion.
As for Apple's much-anticipated new product categories, which the company is expected to enter in 2014, Whitmore expects that a television or wearable devices could be in the company's pipeline. Such products "should alleviate innovation concerns," he said.
RBC Capital Markets
Apple is "executing impressively" at the moment, in the eyes of analyst Amit Daryanani. He sees an iPhone deal with China Mobile, the upcoming launch of the iPad Air and Retina iPad mini, and a potential increase in capital allocation as short-term catalysts for the company.
Blended average selling prices of both the iPhone (at $577 last quarter) and iPad ($439) are showing signs of stabilization, he said. He expects that Apple's margins could begin to grow through fiscal year 2014 with strong sales of the iPhone 5s and iPhone 5c.
Daryanani also noted that the mid-point of Apple's guidance for the December quarter implies about 4 percent year over year growth. If the company is able to grow both the iPad and Mac lineup during the holiday season, he expects that Apple will report revenues that exceed the mid-point of its guidance.
Analyst Gene Munster is encouraged by the guidance Apple provided for the December quarter, which came in ahead of his expectations on the revenue side. He expects earnings to be essentially flat year over year for the holidays, before trending upward 8 percent in the March 2014 quarter.
"The December guide suggests the business has stabilized," he said. "The bigger picture moving forward is calibrating the fade of the iPhone 5s in March 2014 and the timing around additional product launches."
For next year, Munster expects Apple to release a larger-screened iPhone, a smart watch accessory, and the analyst is still holding out hope for a full-fledged television set from the company.
Analyst Brian White believes Apple has upside potential to his price target of $777, nearly $250 higher than the company's current share price.
He, too, views Apple's guidance for the December quarter as conservative, as his own projection calls for the company to bring in revenue of $58.9 billion for the three-month period — ahead of Apple's high-side $58 billion outlook.
Apple is protecting its strong ecosystem from threats like Google's Android with free software, analyst Brian Marshall believes. The company announced last week that future OS X, iWork and iLife updates will continue to be free for Apple customers.
Marshall has increased his calendar year 2013 estimate to $174.1 billion in revenue and $39.96 billion in profit. He sees the company selling 156.6 million iPhones and 73.2 million iPads, with product margins at 37.2 percent.
A "favorable" mix of iPhone and iPad units should result in stronger average selling prices and margins for the holiday quarter than market consensus expects, according to analyst Michael Walkley.
He's also anticipating the launch of a TD-LTE iPhone on the network of China Mobile, the world's largest wireless operator. That launch could help bolster Apple's March 2014 quarter, and offset some of the post-holiday seasonal trends in Western markets, he believes.
Longtime Apple bear Alex Gauna was encouraged by stronger-than-expected iPhone sales, as well as gross margin stabilization at 37 percent. He remains "fundamentally neutral" on the company, however, citing the fact that domestic cash fell by $5 billion and he doesn't see "enough innovation" in the iPhone 5s or new iPads to cause consumer excitement.
"Shares of Apple ended up essentially flat in aftermarket response to the upside result, and we would expect sentiment to continue to be caught in a tug of war between encouraging indications that growth and margins are turning the corner and ongoing concerns about a lack of business model expansion, the speed of product cycles, and Android market share and cost advantages," Gauna wrote.