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January 24, 2013

How record sales, profits cost you billions

Unlike Hewlett-Packard, Apple reported record sales, record growth, and record profits for its latest quarter yesterday. The company has more than $100 billion in cash reserves. Its latest products are outselling the records set by preceding models.

And Apple just lost $60 billion in market cap in today's stock trading.

These are the rules of stock shenanigans that have kept scuffling companies alive while rocket-ships get pelted by analyst eggs. Nothing is more important than beating the estimates of these students of business. Beat them all, too. So if a company sells only 22.9 million tablets in 90 days -- a quarter-million iPads a day  -- instead of 23 million, that's a "miss." Not just beat the estimates of profits, where Apple posted $250 more than the outrageous $13.55 a share estimate. It needs to exceed all estimates, not just slam out a $13.81 per share mark.

GovThe coverage is being couched in terms of analyst estimates, and they need to protect their “phoney-baloney jobs,” as Mel Blanc’s Governor said in Blazing Saddles. Today’s fallout from the wiseguys’ reports were great news for the analyst clients who want to climb on board the stock at $450, I suppose. There’s been too much hype to withstand the “knock-em-down” counterpunch that always follows a brilliant run-up of anything.

For contrast, recall that HP's entire stock price is $17 today -- and it spent much of the latest quarter priced at the value of Apple's profit per share. HP is looking at a quarterly report in about a month that may determine if the company needs to break up the band. Back in the days of its hits like the 3000, it spun off Agilent and continued to grow. Agilent, the old instrument arm of HP, is where the HP Way went to live and thrive.

What does $60 billion in lost market cap matter? A lot compared to HP. That would be two times the value of all of today's HP cap. Destined to split itself in two, the former rival for personal computing will then have an enterpise business market cap of one-fourth of just what Apple lost today. Just for some perspective, folks.

HP got cuffed around not long ago in the same way by analysts -- but after it announced a fleecing it took in the Autonomy deal, plus reporting record red ink. What matters for any customer is still black ink, and not the kind that propped up half of HP's profits, flowing out of the printer division. Profits fuel R&D, unless a company is buying up its innovation. Even with a $60 billion hit, Apple will still be funding innovation tomorrow after 52 million shares changed hands today.

The R&D at HP means the most to an enterprise customer, honestly, and especially to anyone migrating to a non-3000 enterprise product. It's hard to see right now where the R&D funding will come from at HP, unlike the Apple outlook.

With sales and earnings and growth tossed to the winds of worry, there seems to be no number that will generate a story other than “Apple is weakening.” Not an increase in profits to a record level, or a jump in revenues to the same. iPad sales, at 22.9 million, were just 100,000 tablets short of the analyst estimates. This is called a “miss,” even while the sales outstripped every other tablet 2:1.

One hidden issue is the lack of new iMac shipments, but that doesn’t seem to have hurt those top-line numbers. Operating margin decline is an concern, too, a measure of the cost in the future to create those rising profits. The estimate of the cash reserve on hand at Apple is more than $100 billion. And the latest quarter delivered $13 billion in profits. These numbers are so outrageous that it reminds me of the quote from Citizen Kane. Kane’s been told he’s losing $1 million a year on publishing the Enquirer. “You’re right. I lost a million this year. I expect to lose a million next year. At that rate I’ll have to close the Enquirer – in about 60 years.”

 Apple could deliver record, quarterly earnings for almost two years just on the strength of its cash on hand — and sell nothing at all. But you can expect the machine to outpace itself by another 7 percent this quarter, by Apple’s now-cautious estimates.

So there’s not much wrong with any company still making the best product in the mobile market and raking in billions in profits for its R&D needs in the future. Contrast it with HP — trading at $17, with analysts forecasting a breakup and terminating dividends. Likely outcome for the former development, perhaps sketchy on the latter. But that’s a 13-cent a share dividend at HP. And Apple’s paying $2.65 a share, right?

HP should be so lucky to have the problems from numbers like Apple just posted. Not again in our lifetime, perhaps like the $700 Apple share price that those cheapskate analysts' clients never want to pay again.

07:32 PM in Migration, Newsmakers | Permalink

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