Piper Jaffray Gives Apple Earnings Preview

Piper Jaffray Believes Apple's AAPL Dec. quarter results could be ahead of the Street driven by strong iPad and iPhone results. Mac and iPod will likely land in line with consensus. Bottom line: iPhone and iPad remain somewhat of a wildcard, albeit positive, and we believe solid holiday demand could drive upside to Street numbers. Assuming Apple guides March consistent with past guides implies $22.76b and $4.41 EPS (Street $22.1b and $5.01 EPS, but numbers could be low given the 2/10 Verizon iPhone launch). For example, Street iPhone estimates would increase by 21% if the iPhone y/y growth rate remained unchanged from December 10' to March 11'. This would increase overall March Street revenue estimates by ~5% to $23.7m. The Street is looking for EPS of $5.35. Assuming a typical beat over the past 18 quarters, Apple would report $6.05. To get to $6.05 on $24.3b in revenue would require gross margin of 41%, well ahead of 36.9% in Sept., the Street's 37% September estimate and guidance of 36%. The bottom line is the mix shift and revenue upside driven by the lower margin iPad significantly tempers EPS upside potential. Piper Jaffray has a $438 PT and Overweight rating on AAPL AAPL closed Friday at $348.48