Apple Earnings Preview: No Preventing This Blowout


Forget "Antennagate." Apple (AAPL) will report Tuesday that earnings doubled from last year on scorching sales of the company's iPad tablet computer and the new iPhone 4 -- reception issues notwithstanding -- according to Wall Street analysts.

Apple will benefit both from its habitual low-balling of expectations, but more importantly the introduction of two, red-hot new products so far this year. Mac desktop sales will also be solid.

Analysts polled by Bloomberg expect Apple to report profit of $2.87 billion, or $3.09 per share, compared with $1.23 billion, or $1.35 per share, last year. Overall revenue is expected to increase by 76% to $15 billion.

It will be the strongest quarter by revenue in the history of the 34-year-old company, which earlier this year surpassed erstwhile rival Microsoft (MSFT) in market capitalization. This is the first time Apple has approached Microsoft's quarterly cash haul of $15 billion in sales.

Apple to Double Earnings, Revenue

Apple's results will provide a brief, positive respite from so-far lackluster earnings reports by tech giants like Google (GOOG) and IBM (IBM). Intel (INTC) was a standout because companies must upgrade their systems after waiting on the sidelines during the recession.

Judging by corporate reports so far this month, these top-performing companies are meeting their profit targets, but showing relatively anemic revenue growth, a sign that the U.S. economy is still suffering from the recession.

Tech companies are reporting growth overseas that exceeds U.S. performance. Worldwide sales are booming -- most of the big tech giants derive 50% or more of their revenue from abroad -- and sales from countries like Brazil, Russia and India are outpacing domestic growth. At the same time, the strength of the U.S. dollar over the last six month has hampered U.S. firms because foreign sales are worth less in U.S. dollars. IBM chalked up a $500 million revenue hit thanks to currency changes.

Robust U.S. Sales

Against the backdrop of sluggish domestic revenue growth, Apple stands out. The iPad may or may not revolutionize the media business, but one thing is for sure. Consumers love the device, and have snapped up over 3 million units since its introduction. This is a completely new product line for Apple, and it's been a resounding success. Tuesday's numbers will reflect that accomplishment.

Meanwhile, Apple should be basking in the glow of its most successful launch in history: the iPhone 4. Instead, it's dealing with nagging questions about why the device loses a signal when held a certain way. Last Friday, Jobs insisted that the problem -- which he didn't actually acknowledge -- is common to all smart phones.

Competitors didn't appreciate being drawn in to what BlackBerry-maker Research In Motion (RIMM) called Apple's "self-made debacle."

Never Again

Jobs said Apple will offer free bumper cases to customers whose iPhones lose a signal. If that doesn't work, customers can receive a refund. That seemed to diffuse the issue, or at least give users a clear choice: Buy a case, return the phone, or stop whining.

Antennagate has surely cost Apple reputational value -- for now. The stock has taken a $10 to $20 hit in the short-term. But have no illusions: Jobs is keen to never allow such an error to occur again.

Here's the bottom line: Apple's aggressive design philosophy, coupled with Jobs's authoritative management style, allowed the company to miss what should have been a clear hazard. Apple's design wizards -- led by Jobs -- over-reached, and the company's PR team was caught flat-footed. Under duress, Jobs deftly changed the conversation from one focusing on Apple to an industry-wide problem.

Slightly bruised, but surely not humbled, Apple's juggernaut rolls on.

Originally published