Business News

Apple of the earning season's eye

| More

by Peter Switzer

On the 22-year anniversary of the Crash of 1987, the Dow Jones and the S&P 500 indexes kept climbing, defying gravity and negative predictions of bear investors, with the latter index breaking through 1100 for the first time this year.

The tech story

The big story was tech today, and earnings optimism pushed the US stock market indexes up pretty convincingly. The Dow put on 96 points to end at 10,092 while the S&P 500 finished at 1,097 and that’s a rise of 10 points or nearly one per cent. The Nasdaq was up 19 points to 2,176.

Tech stocks in the US are taking on the Queensland mantle of beautiful one quarter, perfect the next. In fact, Apple and Texas Instruments pulled off the perfect plays, beating forecasts on the earnings and revenue side as well pointing to promising outlooks.

Music to the ears

This is like iPod music to an optimistic share player’s ears.

But can this perfection be reproduced away from tech companies? That’s the big question whose answer will determine stock market direction. You see, a lot of tech companies are very foreign market-orientated and that means their revenue success, at first blush, could be poorer indicators of the strength of the US recovery.

Of course, eventually their numbers will be broken down to see the US component of demand and that could provide some good news. On the other hand, Apple-type products such as iPhones and iPods are nearly becoming compulsory products that could be very recession-resistant.

Companies selling cars, lounge chairs and refrigerators could be better indicators of the strength of the US recovery, which in the end will determine what happens to stock market direction.

Last quarter and this quarter

Remember last quarter was BTE (or better than expected) because costs were cut and earnings went up. This quarter, analysts want to see revenue improve to show that demand from US consumers and US businesses is on the rise.

Texas Instruments, the chipmaker, made 42 US cents a share against the consensus of experts who tipped 39 US cents a share. The estimated revenue was guessed at US$2.82 billion, but came in at US$2.88 billion.

"We are encouraged with the strong sequential increase in demand for our products over the past two quarters as our customers are winding down their inventory corrections and have begun to increase production levels in their factories," said Rich Templeton, chairman, president and CEO.

Pick of the crop

But Apple’s results were the pick of the crop.

Higher sales and profits KO’d the expert tips from analysts and sent their shares soaring after trading.

The market was looking for US$1.42 earnings a share but came in at US$1.82, with the sales of iPhones and Macs recording record quarterly sales! This is a usual GFC, isn’t it?

On the sales revenue front in the same quarter last year, Apple had the cash registers ringing to the tune of US$7.89 billion compared to US$9.89 billion this year!

However, is this a surprise given the fact that they are now one most of now don't-leave-home-without with three must haves? That is, our keys, our wallets or purses and our phone, which will in all likelihood be a iPhone or a Blackberry.

The earning’s fear and loathing drama continues but like in the fairy tales — even the scary ones! — expect a happy ending.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Published on: Tuesday, October 20, 2009