Apple Q4 2012

Apple Inc. (NASDAQ:AAPL) is reporting earnings on October 25 after the close. Analysts expect Apple to report revenue and EPS of $36.5B and $8.99 and guidance of $34B and $7.65. Analysts expect gross margins of 40.5% . Currency’s impact will be relatively in-line with the amount baked into management’s outlook. iPhone 5 sales will be one of the keys factors which analysts will look for in the Apple’s earnings release.

apple earnings Q4 earnings iphone 5

iPhone: Price Reduction of iPhone 4 and 4S Combined with the iPhone 5 Launch to Help F4Q12 Sales

After experiencing a material slowdown in iPhone shipments during the June quarter, Apple announced the availability of iPhone 5 on September 12 while the new device was released on September 21 in nine countries. The company launched the new phone in additional 22 countries on September 28.

Apple Inc. (NASDAQ:AAPL) has announced that it shipped over 5 million iPhone 5 units in the first weekend of its launch in the initial set of countries. The company is experiencing a bottleneck in the production process as yields of in-cell display manufacturing process have not yet fully ramped up. As such, its ability to sell iPhones is being constrained by the number of displays its three key suppliers, Japan Display, LG Display Co Ltd. (NYSE:LPL) and Sharp Corporation (TYO:6753) can produce.

Channel checks indicate that the company likely sold about 8-10 million iPhone 5s during the September quarter. For the iPhone 4 and 4S, our checks indicate that the company benefited from price reduction whereby the demand for its older generation phones accelerated after management decided to cut prices. Analysts estimate that the company sold about 18-20 million older generation phones, which likely resulted in inventory reduction of 2-3 million phones as Apple Inc. (NASDAQ:AAPL) had ended F3Q12 with over 8 million iPhones in channel inventory. As such, the company is likely to report iPhone shipments relatively in-line with consensus forecast of 25-26 million phones.

For ASPs, analysts at Mizuho Securities expect the segment to end up in the $625-650 range, which compares with $643 in the year ago period and $624 in the June quarter. While the price reduction in the older generation phones will act as a headwind for ASP, the launch of the iPhone 5 will provide tailwind as majority of the sales are executed by Apple Inc. (NASDAQ:AAPL) directly yielding higher pricing. Although iPhones have been a source of consistent revenue and EPS outperformance in the past, we expect the segment’s F4Q12 results to end up in-line with our and consensus estimates.

Full disclosure: the author of this article has no position in any securities mentioned