With Earnings Around The Corner, Apple's Growth Prospects Are Gloomy

Conventional wisdom has it that Apple has reached its peak and can only disappoint from now on. Yet, many financial facts don’t make sense. The market is too harsh with Apple compared to its competitors. But when it comes to products, there is an unsettling detail: there was no product release during fiscal Q2 2013. While Apple is certainly not doomed, its future looks gloomy. That’s why today’s earnings will be important for the company. Expectations “I am a dreamer. I know so little of real life that I just can’t help re-living such moments as these in my dreams, for such moments are something I have very rarely experienced.” –Fyodor Dostoyevsky, White Nights (1848) Apple’s growth has been incredible over the past two years, with double-digit growth for sales and profit. For years, Apple bloggers have vigorously criticized analysts’ expectations regarding Apple earnings and units sold. Basically, Wall Street analysts were setting the bar too high for units and market share, and too low for profit and sales. It led to distortion. With a very minor market share, Apple was able to capture a big profit share. The company reported hit after hit after hit — that’s why Apple shares were doing so great even though sales were “disappointing” according to some analysts — the bottom line is more important than anything else. But now, analysts have caught up and Apple is only able to pull out mixed earnings compared to estimates. Even iPhone sales are now below analysts’ expectations. The company was supposed to sell between 6 million and 10 million iPhone 5 during opening weekend. In reality, it sold 5 million units. As a reminder, for the first weekend alone, analysts predicted sales of 1 million iPhone 4 and 2 million iPhone 4S, compared to 1.7 million and 4 million actual units sold. This time around, analysts have to lower their expectations to get closer to reality. Fortune’s consensus puts Apple’s Q2 2013 revenue at $42.6 billion with estimated earnings per share of $10.21. Revenue would still be up 8.7 percent year over year. But it’s disappointing given the incredible growth trend over the past couple of years. One of the reason is that gross margin will be lower than what it used to be. Last year, Apple reported a 47.4 percent gross margin. The company now expects a 37.5 to 38.5 gross margin. Finance Over the

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