Apple's report card less important than crystal ball

Apple's fourth quarter should have survived the economic chaos currently rounding the globe, but what Wall Street will care about Tuesday afternoon is its outlook on the future.

Despite a few more product glitches than usual, it's been business as usual at Apple during the past three months: strong Mac growth and steady iPod sales, with the added bonus of soaring iPhone sales this time around. But the company finds itself in a much different economic environment than last time Apple held an earnings conference call in July.

Will consumers who just watched the value of their retirement savings plunge by 30 percent or more still want to load up on high-end consumer electronics equipment this holiday season? Analysts seem to believe the company's hot streak is likely to continue so long as Apple products remain in the good graces of the public, but no company is immune from the effects of a prolonged recession.

Wall Street analysts expect Apple to have recorded $8 billion in revenue and earnings per share of $1.11 for its fourth fiscal quarter, which would represent increases of 29 percent and 10 percent, respectively.As we did last quarter, let's take a look at Apple's three main businesses and their performance during the July to September quarter, then examine what might lie in store for Apple as 2008 comes to a close.

Apples for the students
The fourth quarter of Apple's fiscal calendar is almost always one of its strongest for Mac sales, as it takes advantage of the back-to-school shopping season. The Mac brand is extremely strong among the collegiate set, as Apple COO Tim Cook outlined last week at the company's notebook event.

Even without the new MacBook and MacBook Pros, Apple enjoyed an excellent quarter for Mac sales, according to recent market share results. Piper Jaffray's Gene Munster thinks a repeat of the free-iPod-for-students promotion of past years probably helped, and he expects Apple to have sold 2.8 million Macs during the quarter, as compared with Wall Street expectations of 2.5 million units. Last year during this period, Apple sold 2.1 million Macs.

None of the new notebooks will contribute to Apple's fourth quarter, which ended a few weeks earlier. But the decision to adopt the unibody chassis on all new MacBooks and MacBook Pros could prove to be a more expensive proposition at first, until the process becomes old hat. The research and development costs to get that production process up and running took place in the past quarter, which might have dinged Apple's margins by the point or two that CFO Peter Oppenheimer warned was coming last July.

No static at all
Well, given the reception problems experienced by many iPhone 3G owners, perhaps that's not the best title for this section. But despite the bugs that required an all-hands-on-deck approach to the 2.1 software update, iPhone sales took off during the past quarter, with analysts expecting Apple to have sold as many as 5 million units.

The lower acquisition price of the new iPhone as well as the global reach appear to have Apple well on its way to hitting its 10 million shipment goal for 2008. In fact, some bloggers believe the company has already reached that milestone. Whatever the number, it's clear the iPhone is becoming a huge part of Apple's fortunes more than a year after it was introduced, and while rivals like Research In Motion are preparing an offensive for later this year, the iPhone is now well-established in the market.

The song remains the same
The "funnest ever" iPods were probably unveiled too late in the quarter to make much of a difference to Apple's iPod sales during the quarter, although the tag line made copy editors around the world cringe in horror. Expect mostly the same iPod story as the last several quarters have shown: modest unit growth, modest revenue growth, as iPod saturation mixes with a switch from lower-priced iPods to higher-priced units like the iPod Touch.

In a future age
In July, Apple itself said it expected revenue of $7.8 billion and earnings per share of $1, but like death and taxes, an underpromise-overdeliver approach to guidance from Apple is a given. The worst effects of the stock market crash came in the last few weeks of Apple's quarter, so the economic environment is unlikely to have too big an impact on the current quarter, especially given the health of the Mac and the iPhone during the period.

Analysts are likely to pepper Oppenheimer--with little success--regarding his expectations for the current quarter. Apple's guidance will be a key driver behind those questions; everyone knows the company's guidance will likely come in below the $10.6 billion in revenue and $1.66 in earnings per share that analysts are expecting for the company's first fiscal quarter, because Apple has done that almost every quarter for the past several years.

But how far below those expectations is Oppenheimer willing to go? That number will either be spun as an indication that Apple thinks it can weather the storm better than the Web 2.0 crowd--which is probably a given anyway--or that Apple is in trouble as consumers keep the wallets wedged in their pockets.

As I said earlier, no company that depends on consumer spending is immune to the effects of a prolonged recession. Some will do better than others, however, and Apple appears to be in better shape than some of its competitors.

Business spending on IT is quick to plunge during a recession, and Apple depends on that sector for very little of its revenue. The Mac and the iPhone are perhaps the two most profitable segments of the company's business and both are growing faster than the market itself as they take market share from the competition. Apple has the headroom to sustain its recent growth for at least a quarter or two even if the economy slows, because it's still drawing from a huge pile of potential switchers for growth.

That is, of course, assuming the economy doesn't get even worse.