Will Apple Keep Running With the Bulls?

Analysts were generally impressed Monday after Apple (Nasdaq: AAPL) announced record revenues and profits for the first quarter of its fiscal year 2010, and they continue to be revved up in anticipation of the announcements Cupertino has planned for Wednesday, although no one is exactly certain just what that dog-and-pony show will entail.

The belief that Apple will unveil a tablet remains strong as ever, and Apple may also announce it's adding another U.S. carrier for the iPhone, possibly Verizon. However, Cupertino has recently come out strongly in support of AT&T (NYSE: T).

If Apple does announce a tablet on Wednesday, price will likely factor largely in the market's reaction; one figure being bandied about hovers around US$1,000.

At close Tuesday, Apple shares were up $2.70 to 205.78. What might Monday's earnings, combined with Wednesday's revelations, mean for investors? Let's find out.

Money: It's a Hit

For the first quarter of fiscal 2010, Apple's revenues were US$15.68 billion, and net quarterly profits were about $3.38 billion, or $3.67 per diluted share.

That's an increase of almost 32 percent in revenues and almost 63 percent in profits from the same quarter a year ago.

Apple's gross margins also increased from 37.9 percent to 40.9 percent year over year -- up 8 percent.

That means Cupertino made more money while cutting costs at the same time. This is the kind of company one wants to invest in.

International sales accounted for 58 percent of the quarter's revenue, up from the previous quarter's 46 percent.

On the whole, Apple sold more product in this past quarter. It moved 3.36 million Macs, 33 percent up year over year; and 8.7 million iPhones, 100 percent up year over year. The only note that could be considered sour came from the iPod sector -- Cupertino sold 21 million iPods during the quarter, which was 8 percent down year over year.

Still, 21 million units of anything is a lot of units, and buyers are buying the more expensive iPods like the iPod touch, so unit sales figures are only a vague indicator of what's really going on.

Keeping the Momentum

The real question now is, can Apple continue its incredible performance? Possibly, but keep in mind that Apple switched to non-GAAP accounting for its Q1 2010 financial results, which could muddy the waters somewhat in drawing comparisons to previous quarters.

Kaufman Bros.' Shaw Wu raised his forecasts for fiscal year 2010 from $44 billion in revenue to $53 billion, and he upped earnings per share (EPS) from $7.40 to $11.15. However, he also complained about the non-GAAP approach Apple is now taking. UBS analyst Maynard Um has cut his FY '10 estimates. He now pegs Apple's FY 2010 revenues at $52.1 billion and EPS at $11.82, down from $52.3 billion and $11.68, respectively.

GAAP stands for Generally Accepted Accounting Principles; Apple, Cisco (Nasdaq: CSCO) and other companies have campaigned successfully to use non-GAAP figures for hardware/software combos like the iPhone, where customers pay a monthly fee over a set period, because it better reflects their earnings.

When a company announces earnings in non-GAAP figures, therefore, it's important to remember that they cannot really be compared against GAAP numbers. That having been said, let's go back to the important question: Can the Apple train keep rolling on?

Well, why not? GAAP or non-GAAP, Mac and iPhone sales increased, and there's plenty of potential for further growth, both in the U.S. and abroad. Apple is pushing very hard to open up new markets for the iPhone and iPod touch, positioning them as useful tools in education and other areas. For example, Abilene Christian University has just finished its first year of a pilot program in which 1,000 freshman students were offered either a free iPhone or an iPod touch to use in their education.

Then there's Wednesday's event, which Apple CEO Steve Jobs says he's "really excited" about. Let's put it this way: So far, when Jobs gets excited, the market follows. Let's hope he can maintain that track record.

What About a Tablet?

The excitement around the much-anticipated Apple tablet has gone beyond frenzy. We level-headed investors don't care what device Steve unveils on Wednesday; we just want to know whether or not people will snap them up and we can laugh all the way to the bank.

Flurry Analytics claims it has detected Apple testing out mobile apps on up to 50 tablet devices. The announcement triggered some skeptical responses, though it didn't appear to shake widespread expectations that a tablet is indeed on the way.

How can Flurry be sure it was looking at Apple tablets, asked critics, since it based its conclusions on tracking apps over the Internet? "The hardware would tell us, via the software, if the devices we were looking at were iPhones," Peter Farrago, Flurry's vice president of marketing, told MacNewsWorld. "We feel confident that we're looking at the tablet."

Further, Farrago said, the apps being tested on these unknown devices are what the tablet is expected to feature -- news and books, for example.

How Much?

As always, price will play a large part in how consumers react to Apple's new product, and there's no shortage of guesses as to what that figure will be. Some customers will no doubt gladly fork over upwards of $1,000. "There are people who are almost religious zealots for Apple products who will stand in line at the Apple store and pay what Apple charges for the privilege of being the first people to own them," Andrew Eisner, director of content at Retrevo, told MacNewsWorld.

However, not all of Apple's customers fit that description. A survey by Retrevo of more than 500 people earlier this month found that 70 percent would not buy the device if it cost more than $700. Also, 44 percent said they would not buy the tablet if it required them to subscribe to a data plan.

"There's a lot of resistance to paying out more money," Eisner pointed out. "If Apple makes people pay data fees and $9.99 a book plus $1.50 for The New York Times, people could get frustrated very quickly."

Even $700 is too high for Broadpoint Amtech analyst Brian Marshall's liking. "I hope it retails at $599," he told MacNewsWorld.

So if a tablet is announced on Wednesday and it's priced at anywhere above $700, investors may want to hold off for a few weeks before getting excited about the device. That will let the market work off the first flush of melodrama generated by Apple fans and get a cooler look at the situation.

Going to Verizon?

Another subject of gossip is the possibility that Apple will announce another wireless carrier for the iPhone in the U.S., possibly Verizon.

That's likely to happen in the near future, partly because of pressure from the Obama administration and the Federal Trade Commission, pointed out Jim McGregor, chief strategy analyst at In-Stat. These two are trying to end the practice of wireless carriers exclusively offering particular smartphones, McGregor told TechNewsWorld.

"I think Verizon will offer the iPhone on its network in the second half of 2010," Broadpoint Amtech's Marshall predicted. That, he said, will give both Apple and Verizon a boost. "It's a match made in heaven, with the best network and best smartphone," he explained.

If Apple does pick Verizon, things could get mighty interesting -- in the best possible way -- for investors.