Apple Earning Call: Are Apple Expectations Too High?

Apple Earning Call: After a disappointing earnings report, many people are beginning to wonder what is wrong with Apple Inc. (NASDAQ:AAPL). While there are a lot of theories on what is going on and what the company can do to get back on track, many are overlooking something very simple: expectations.

In other words, do people, including investors and analysts, expect too much from Apple Inc. (NASDAQ:AAPL)? Do they expect every new product to be the next big thing? Do they expect the stock price to increase, no matter what?

For a better idea of what the future holds for the company, check out this overview of a recent video interview with Bloomberg Television markets reporter Jon Erlichman: Jon Erlichman Discussing What is Next for Apple Inc.

The issue of managing expectations was recently tackled by CNBC technology correspondent Jon Fortt. Here is a brief excerpt to clear the air:

“What’s wrong with Apple: Slowing growth? Increasing competition? Falling margins?”

“Maybe not so much. Maybe the biggest issue is poorly managed expectations.”

“Apple of course reported holiday quarter revenue of $54.5 billion on Wednesday, up 15 percent from $46.3 billion a year ago. (Factoring in the quarter was 13 weeks compared to 14 last year, revenue was really up 26.7 percent.) Net profit came in at $13.1 billion, flat with a year ago or up 7 percent if you factor in the short quarter.”

“Apple now trades at a discount to Microsoft, which is expected to report revenue up 3.1 percent from a year ago, and net income down slightly. Let that sink in.”

After looking that over, you may begin to realize that expectations for Apple Inc. (NASDAQ:AAPL) are entirely too high.

Here is what Fortt had to say about competition, growth, and margins:

On Competition:

“Here’s what makes this part puzzling: Apple’s iPhone actually took market share from Android on Verizon in the holiday quarter, which suggests it’s doing just fine against Samsung.”

On Growth:

“Apple’s data released Wednesday showed iPhone units were up 29 percent over last year, and revenues were up 28 percent. Factoring in last week’s long quarter, sales were up closer to 40 percent. iPad sales? Similar story. Units are up 48 percent year over year, sales up 22 percent, before you factor in the short quarter.”

On Margins:

“What about declining margins? Aren’t those a sign that Apple’s facing pricing pressure?”

“Not exactly. The average selling price of an iPhone this year: $641. A year ago: $646. The difference is less than 1 percent, and can probably be explained by Verizon’s new ability to offer the iPhone 4 for free, subsidized. Apple said iPhone 4 supplies were constrained.”

Do you agree with this assessment? Are expectations too high for Apple Inc. (NASDAQ:AAPL)?

Check back here for more updates on Apple Earning Call.

DISCLOSURE: I have no positions in any stock mentioned.

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