Apple Earnings:The arrest of Galleon Group founder Raj Rajaratnam on insider trading charges swings attention back to the hot and heavy world of technology-stock trading. These highly volatile stocks are a trader’s playground because share prices can swing wildly based on whether companies miss or beat earnings’ expectations, even by a penny or two.
Analysts assign large multiples to high growth tech companies because rates of revenue increase can be immense if a product becomes a hot one. Conversely, if the technology turns out to be a dud, than investors fear the company is over-valued and its share price often plummets.
At worst, tech earnings can invite the kind of trading that are alleged in the Rajaratnam case, in which he’s accused of pushing for inside information to get a jump on an earnings releases. Rajaratnam has denied any wrong-doing
More commonly, investors have to sort through the noise, speculation, exaggerations and “urban legend’’ as one tech analyst described it in a research report this morning, that surround tech earnings.
Today, one of the kings of tech volatility, Apple Inc., reports its September quarter results after the market closes:
The consensus estimate is that Apple will earn $1.42 a share, but the “whisper” number (or the number that many investors unofficially expect Apple to achieve) may be closer to $1.50. Apple guidance, as is customary, expects a much lower number of as much as $1.23 a share.
Here’s a sampling of the pre-earnings noise:
iPhone issues:
One big issue that could cause Apple to miss is if the company fails to hits its projected iPhone sales. Oppenheimer analyst Yair Reiner says delivery and manufacturing problems may prevent Apple from hitting a target of 6 to 7 million iPhones being delivered in the quarter.
Mac Attack:
Iphone carriers have reported in recent surveys that supply constraints have eased, which means Apple could meet its delivery targets. Another area that could help drive Apple’s higher than expected profits are iPod sales. The portable music player’s design has just been upgraded, which could boost sales. Back to school sales this fall could also drive Mac sales higher than expected. (ThinkEquity LLC expects Mac sales of 2.85 million in the quarter, compared to the consensus estimate of 2.6 to 2.7 million)
Sensing Sentiment:
“At this point, our main concern is high expectations where the upside may not be enough to satisfy near-term bullish results,” writes Shaw Wu of Kaufman Bros. Equity Research
Better Luck Next Quarter:
Reiner expects “disappointing” earnings today and advises investors “to keep some power dry to buy Apple’’ after today’s earnings because he says there will be “gargantuan” iPhone gains in the December quarter when the bottleneck is resolved.
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