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AAPL and IBM Earnings

01/18/2011

On Tuesday evening January 18, International Business Machines Corp (IBM) and Apple Inc. (AAPL) reported quarterly results.

Generally, I do not comment on specific earnings reports for individual equity names via this blog.  However, within the results for AAPL and IBM, there are THREE macro themes that are extremely supportive of my expectation that the domestic economic recovery will advance in 2011.

1.  The Resilient U.S. Consumer
The seasonally strong "holiday quarter" exceeded all expectations for AAPL.  Early in the fall of 2010, I highlighted the potential for holiday sales of AAPL products to provide investors with insight toward the true state of the consumer.  During the "holiday quarter," consumers abandoned frugality to aggressively purchase.

  • 7.33 million iPads vs. 6 million consensus
  • 16.2 million iPhones vs. 16 million consensus
  • 19.5 million iPods vs. 18.7 million consensus
  • 4.13 million Mac computers vs. 4.2 million consensus
Guidance for the upcoming quarter was given as $4.90 per share on sales of $22 billion, well ahead of consensus estimates of $4.47 per share and sales of $20.9 billion, as the availability of the iPhone expands into Verizon stores in Q1 2011.

2.  Global Enterprise IT Spending
The world's largest computer software-services firm, IBM, reported earnings that suggest global corporations are increasing IT spending.
  • Hardware revenue increased 21% to $6.3 billion
  • Software revenue increased 7% to $7 billion
  • Revenues in BRIC nations increased 19%, 17% when adjusted for currency
3.  M&A Surge in 2011
The competitors of these two technology giants must keep pace. Growth can be attained organically or via acquisitions. Given the robust cash balances in the technology sector and the excellent earnings reports of January 18, I expect an increase in M&A as IBM and AAPL competitors attempt to compete and pay a premium for growth over the next few months.

    Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.