Apple Changed the Way It Gives Guidance -- Why?
NEW YORK (TheStreet) -- Of all the statistics and data points that were taken from the Apple(AAPL) earnings release and conference call on Wednesday, one was more noteworthy than the rest: the way Apple gives guidance, Wall Street parlance for "outlook." Why did Apple change its policy?
In the fiscal first-quarter earnings release, Apple gave its forecasts for the March quarter: revenue between $41 billion and $43 billion, gross margins between 37.5% and 38.5%, operating expenses between $3.8 billion and $3.9 billion, and a tax rate of 26%. Previously, Apple had given specific targets, not ranges, on revenue, earnings and gross margins.
The point was brought up on the conference call by Sanford Bernstein's Toni Sacconaghi, who questioned the change. It's been widely assumed that Apple would under-promise and over-deliver (UPOD) on its guidance, in effect playing games with Wall Street and ensuring that the stock would rise.
"In the past we gave you a single-point estimate of guidance. It was conservative that we had reasonable confidence as you can have that we would achieve," CFO Peter Oppenheimer said on the conference call. "We're now providing you a range of guidance that we expect to as best we can report within."
He ended up spooking investors even more. The shares fell while Oppenheimer was discussing changes to guidance.
Apple can say it's all about transparency, but there has to be a fundamental reason for the guidance shift. Hudson Square Research analyst Dan Ernst believes this may be the result of slowing growth.
"Guidance, while pointing to slowing growth as we expected, did not reflect the steep drop implied by the numerous supply chain notes from
Innovation -- think iPod, iPhone, iPad -- is key for Apple to keep up its growth rate. Societe Generale analyst Andy Perkins says competition and slower growth are hurting Apple, and that nothing short of a new product will change this.
I'm inclined to believe Apple still has a huge amount of innovation at its disposal, but the guidance change is worrisome, especially for a "broken stock."
What do you think? Why did Apple change its guidance? Let me know in the comments below.
Interested in more on Apple? See TheStreet Ratings' report card for this stock.
-- Written by Chris Ciaccia in New York.
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