Amazon.com, Inc. (NASDAQ:AMZN), on the other hand, doesn’t fully divulge the performance of its Kindle division. The unit volumes are likely to be in the millions (whole-year), based on estimates from experienced bloggers in the finance space (hardware has higher profit margins). As of Amazon’s latest earnings announcement, the company generated a profit margin figure of -0.06%. The decline in profitability could be off-set with hardware sales (higher profit margins), but then again the Kindle is priced so low $69-$269. I highly doubt Amazon’s Kindle is driving any serious margins to its bottom line. The Kindle Fire, at $269, is the closest competitor to Apple iPad Mini ($330). The Apple iPad mini has the “cool factor,” plus the app store, iBook store, and the Amazon.com, Inc. (NASDAQ:AMZN) store, so why bother buying the Kindle? Good point, let’s just trashcan the Kindle, as the iPad Mini is a proven financial success. Apple doesn’t mind bragging about its iPad mini’s success, despite hurting the company’s gross margin figures for the quarter. The Kindle, on the other hand, has to be swept underneath the rug, as Amazon doesn’t want to reveal the Kindle’s unit volumes (I dug through the annual report, it’s not there).
Conclusion and outward guidance
The first quarter is always the toughest quarter for technology stocks. Consumer electronics are driven by consumer sentiment. Demand for consumer electronics is seasonal. Likewise, investors shouldn’t read too deeply into the first quarter, as it is likely that Apple will make up for its EPS losses through share buy-backs, iPhone refresh (iPhone 6), and incremental revenue improvements from its iTunes and iPad division.
There are rumors that Apple Inc. (NASDAQ:AAPL) will come out with a lower-priced iPhone for the Chinese market, which will hurt profit margins but increase total profitability. What could generate some steam is the Apple iWatch. I like the idea of immersive-wearable-computing. It’s a trend that’s building up steam. Maybe the watch will give out beams of light, like Cyclops from X-Men. Okay, that was dumb. But, perhaps the watch will synchronize with your iPhone. After all, I’d prefer talking directly to my watch, rather than going through the added motions of pulling my iPhone out from my pocket. The iWatch is a product compliment that could make up for declining iPod sales (iPod sales declined by 20% year-over-year). The Apple iPhone made the iPod Touch completely unnecessary (creative destruction). Wearable computing could be the next growth category, as it is expected to make up for lost sales from iPod product cannibalization.
Analysts, on a consensus basis, anticipate earnings to decline by 1.10% in 2013. The decline in EPS will most likely be offset through the $100 billion share buy-back program, which will inflate EPS. Apple expects gross margins to stay at 37% for the third quarter. Assuming revenue continues to grow, and margin remains stable, the net income may beat the negative 2.6% year-over-year growth estimates analysts have for the next quarter.
Apple Inc. (NASDAQ:AAPL)’s position may turn around going forward. Wearable computing, product refresh, and share buy-backs could put a floor beneath the price of the stock. Longer-term investors may breathe a sigh of relief, for once.
The article Apple Turnaround May Become Reality originally appeared on Fool.com and is written by Alexander Cho.
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