1 Major Clue That Apple Is Expecting a Blowout Next Quarter

Last week, Apple (Nasdaq: AAPL  ) reported its fiscal fourth-quarter results, closing out the company's fiscal 2012. Days later, the Mac maker has now officially filed its 10-K annual report with the SEC, containing a treasure trove of interesting details and tidbits about the inner workings of the largest tech company on Earth, as well as hints about its future.

What can investors find inside?

Money, lots of money
On the conference call, CFO Peter Oppenheimer alluded to how much of Apple's money mountain was located offshore. He gave an approximation, and I tend to wait for the official filings for a more precise figure. The amount of cash held by foreign subsidiaries is now $82.6 billion. This is actually a rather modest sequential increase from the $81.4 billion held overseas last quarter.

Source: SEC filings.

In fact, this quarter saw the smallest sequential increase in overall cash position in years, "only" rising by $4 billion. Over the past three years, Apple has consistently added to its coffers by at least $5 billion per quarter, and as much as $16 billion in the first fiscal quarter of this year (last December's monster quarter).

One important contributing factor is that Apple just resumed its dividend last quarter, with $2.5 billion in payments made in August. The company also announced another $2.65 per share dividend being paid out this month. At current prices, that puts Apple's dividend yield at about 1.8%, the same as IBM's (NYSE: IBM  ) , but less than other tech heavyweights like Microsoft (Nasdaq: MSFT  ) and Intel (Nasdaq: INTC  ) .

Company

Annualized Yield

Payout Ratio (MRQ)

Apple

1.8%

30%

IBM

1.8%

25%

Microsoft

3.2%

43%

Intel

4.2%

39%

Source: Reuters. MRQ = most recent quarter.

Apple boasts a slightly higher payout ratio than Big Blue though, giving back over 30% of earnings per share last quarter compared to IBM's 25%. Mr. Softy and Chipzilla boast higher payout ratios than Cupertino along with their higher yields.

Retail expansion
Apple retail stores are now located in 13 countries, including the U.S. Apple opened 33 retail stores in fiscal 2012, of which 28 were located outside of the U.S., and finished the year with 390 stores. That total is comprised of 250 domestic locations and 140 international locations. Average revenue per store increased 19% in fiscal 2012 to $51.5 million.

Next year, Apple is targeting between 30 and 35 new retail stores, with 75% of these abroad. Ideally, Apple will put a good portion of these locations in China, its hottest geographical growth segment. As of right now, there are only 8 Apple stores in Greater China, which includes Hong Kong.

Meanwhile, the company is now looking for a new retail chief after John Browett's short tenure has now concluded.

Expecting a blowout
Saving the best for last, Apple has also provided a major clue that it's expecting a blowout quarter for the holidays. We already know that Apple's characteristic lowball guidance calls for $52 billion in revenue in the current quarter, which would top last December's $46.3 billion and set a new all-time record for the iPhone maker.

We also know that Apple likes to throw its weight around in the component supply market, frequently locking down what it needs through a combination of inventory component prepayments as well as off-balance-sheet third-party manufacturing and component purchase commitments. I track both of these figures closely to gain insight into what Apple's expecting, since the company makes these decisions based on "projected demand information."

Inventory component prepayments actually declined sequentially by about $200 million and now sit at $4.2 billion. This figure is recorded as an asset on the balance sheet, with $1.2 billion considered current. This figure actually isn't the aforementioned major clue, but the next one is.

Apple's manufacturing and component purchase commitments have just skyrocketed sequentially to $21.1 billion. That's an increase of $7.5 billion compared to the last quarter and is Apple's highest by far.

Source: SEC filings.

These off-balance sheet commitments are effectively debt that Apple owes, even though it technically has no on-balance-sheet debt. That means that Apple is gearing up to meet massive demand for the arsenal of products that it's unveiled over the past two months, which it expects to drive 80% of revenue this quarter.

That's a big commitment, so the company must be confident in its demand forecasts. This is the clearest sign that Apple is expecting a monster quarter.

With last quarter's lackluster results and the 15% pullback in Apple shares since hitting an all-time high in September, investors must be scratching their heads and wondering if more downside is in store or if this is really a buying opportunity in disguise before a blowout holiday quarter. We've now added two bonus reports to our premium Apple service that lay out the company's biggest long-term opportunities, and they're included at no additional charge. Learn more by clicking here.

Evan Niu, CFA, owns shares of Apple. The Motley Fool owns shares of Apple, International Business Machines, Intel, and Microsoft. Motley Fool newsletter services recommend Apple, International Business Machines, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (27) | Recommend This Article (79)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 02, 2012, at 5:38 PM, jm7700229 wrote:

    Can we please get off Apple? There are a lot of other companies in the world -- some of them even pay a living wage to the people making their products. Apple can't make enough money to get me to invest in them, much less buy their products. Maybe the 99% who are so addicted to their Apple pocket toys should look at the margins Apple is getting on the backs of slave labor in China.

  • Report this Comment On November 02, 2012, at 5:46 PM, mpmiller37 wrote:

    Come on jm7700229, many investors like myself own Apple and want updates like this to determine what to do with the stock. I personally don't own ANY apple gadgets (too pricey for me) but have made a bit of money owning this stock. As many of the products in the US are made in China, its kinda ridiculous to ignore them based on that fact alone.

  • Report this Comment On November 02, 2012, at 6:23 PM, jm7700229 wrote:

    You are certainly welcome to invest in AAPL. It just seems that MF has a new story about them every day. I am pretty well diversified internationally, but with our unemployment rate what it is, I do my shopping at home. I will never be dependent on Social Security or an underfunded government pension program, but I worry for those who will be if we can't look out for our own. As for Apple, I think Jobs did a good (or bad) job of looking out for #1, avoiding taxes, sitting on an overseas cash hoard that belongs to shareholders, and extracting a nickel from every transaction that passes anywhere near them. Maybe the new management will be a bit more public spirited. Not holding my breath.

  • Report this Comment On November 02, 2012, at 6:30 PM, ranaxy wrote:

    This kind of analysis is precisely why I keep coming back to Fool!

  • Report this Comment On November 02, 2012, at 7:06 PM, erniemink wrote:

    I do not like Apple products so I choose not to buy any of them. I use Microsoft. Now you see MIcrosoft is doing GREAT especially after the release of Windows 8, WIndows 8 phones, Windows Surface RT and WIndows 8/RT Tablets. They are less proprietary and over-priced than Apple and just more universal for every part of our lives than Apple this. Nothing will change about that. Microsoft is still number one no matter what.

  • Report this Comment On November 02, 2012, at 7:43 PM, dberdes wrote:

    For the progressives:

    Regarding the slave laborers making Apple products, what is the alternative for them? How many options do they have to make a decent buck (or yuan)? Maybe this is the best wage available to them. Would they be making more money working the fields? How many would have no employment available to them at all?

    Most companies locating factories in developing countries have no shortage of job applicants and most pay above local scale.

    A friend of mine who owns a small business (and is certainly no conservative) recently told me, "Why should I pay a good employee $15/hr when I can pay him $12?"

  • Report this Comment On November 02, 2012, at 8:02 PM, Beringer1 wrote:

    Apple is expecting a blowout? Really? A blowout compared to 'what' exactly??

    Before the recent conf call, Apple was expected to do $15.70 or so per share next quarter in earnings.... however Apple guided $11 and change.

    That's a HUGE miss - so if they do $13 is that a "blowout" because it's better than the BS $11 number they guided? .... or is it still a MISS because expectations were almost $16.

    Apple just broke through the 200 day moving average today (they've been below the 50 day average for a while now)

    The last time Apple closed below both the 50 day and 200 day averages was 2009.

    Right now there are MUCH better places to put your money....

  • Report this Comment On November 02, 2012, at 8:53 PM, hank321 wrote:

    If AAPL goes much lower I will start buying. their margins are astronomical in relation to their P/E. I like the innovative products. The customer service is first rate. They are winning their patent suits.

    The slave labor argument is delusional. All Chinese labor is low paid relative to expensive labor markets such as ours. That is hardly "slave" labor. Apple does better by their international vendor employees than most US firms.

    I bought APPL most recently at $222 and sold between $490 and $500. May be time to buy again. Been buying and selling APPL for nearly 2 decades,...the time to buy is always when the price is falling.

  • Report this Comment On November 02, 2012, at 9:02 PM, lowmaple wrote:

    With the dividend and very probable stock price increase apple is a good and safe place to put your money. In the top 90 percentile of stocks etc.

  • Report this Comment On November 03, 2012, at 9:40 AM, Cassandrabelle wrote:

    Disgusted to watch the transparently biased agenda of MF to pump Apple daily to justify it's own recommendation of the stock as a core holding.

  • Report this Comment On November 03, 2012, at 10:19 AM, WBROWDER wrote:

    Not to comment on all the jawboning in previous postings, but money is to be made from the information is this article. Anyone can see that with preorder parts up over 40% that this Chistmas season Apple sales will be the biggest quarter in history. Buy all the Feb. & Mar. calls with the stock at $575 that you can afford and wait for that Jan 25th Profit announcement. I have already done so!

  • Report this Comment On November 03, 2012, at 12:32 PM, PositiveMojo wrote:

    You've made some interesting points, but the big question is: What is Apple going to do with all that cash?

    The second question is: How will the new products be received over the holiday season with potentially fierce competition from Microsoft? I've played with the Surface tablet and it is impressive.

  • Report this Comment On November 03, 2012, at 4:05 PM, PattyBilly wrote:

    For years I avoided owning Apple and my daughter-in -law was always asking why. Well, last year I purchased I put 70 percent of my portfolio into Aople, rode a good up surge up to the 703 mark, debated selling, didn't and rode the mule all the way down to

    yesterday low selling three times on the way and buying back at a slightly higher price. I bought another 15%, totaling 85% of my investing money in

    apple and watched that 15% drop, drop, drop. After

    doing well for 30 years in the market, I now feel like and upper fool but I do believe as you guys do that Apple is due for a blow out. If your earthwork has been done with a golden spade I believe we could see 780 from a spike like Priceline just savored. I decided you guys know more than I do so I joined your 1 mil club and am just beginning to do my homework on your recommentations. Guys, at 84 I am putting 90 percent of my life saving into your hands.

  • Report this Comment On November 03, 2012, at 5:16 PM, 2foolisharewe wrote:

    I am really interested in logical and wise comments. It seems as if some are getting carried away with insults instead. WOW!

  • Report this Comment On November 03, 2012, at 9:14 PM, dsciola wrote:

    Evan, you seem to be putting a lot of faith in mgmt's assessment. Is their any other clear indicator of a blowout quarter other than their substantial inventory purchase?

    Given that mgmt just had a shake-up, it seems further evidence may be needed here to be fully confdent in a blowout quarter. fwiw, I admit I will likely also be betting on an impressive Q1 as well.

    Dom

  • Report this Comment On November 03, 2012, at 10:47 PM, DonkeyJunk wrote:

    jm7700229

    Ethics and fanboyism aside, MF is obliged to cover Apple because they are the company with the largest market cap in the world right now and are of considerable importance from an investment standpoint. By covering Apple, they are catering to a great many investors who own the stock, are considering buying the stock, or may want to sell their shares.

    Imagine if the news stations spent their entire October covering South African politics rather than the elections--people would look elsewhere for relevant news. Media has to cater, at least in some respects, if they want to continue to function, to the majority.

    MF has A LOT of contributors. If you don't want to read an article about Apple, you don't have to choose from the 10 most popular articles that show up on the front page.

  • Report this Comment On November 04, 2012, at 2:07 PM, UNC1GAL wrote:

    The question is whether this is for iPhone5's being made from the pre-orders or if a new product is going to be unveiled. Correct me if I'm wrong but many of the parts for the iPhones are not that expensive.

  • Report this Comment On November 04, 2012, at 3:50 PM, EvanBuck wrote:

    @DonkeyJunk excellent points. If you don't want to read about Apple, then don't click on the article about Apple. Hmm, novel concept.

  • Report this Comment On November 05, 2012, at 2:15 PM, superbinvesting wrote:

    The gravy train will come to an end at some point. Once Steve Job's legacy plan comes to a close Apple will be on its way to becoming the next RIM. Five years from now AAPL trades under $100.

    www.ingeniousinvesting.com

  • Report this Comment On November 05, 2012, at 2:33 PM, Fool wrote:

    Evan - what level of detail are you able to get to in the 3rd party manufacturing and components purchase agreements? Are you able to tell what products the ramp-up is in expectation of?

    iPhone 5 and iPad Mini both got introduced last quarter and I was interested in what the allocation of the $21B in purchase orders looked like. If I recall correctly, don't the iPhones carry higher profit margins than the iPads?

  • Report this Comment On November 05, 2012, at 2:33 PM, hiddenflem wrote:

    the big question to ask is "blowout relative to what?" market expectations? their own estimates?

  • Report this Comment On November 05, 2012, at 4:49 PM, truman1987 wrote:

    Nice detective work in this article.

    BTW The idea that a favorable article in MF could "pump up" the stock of a company as large as Apple is like a fly floating downstream yelling "open the drawbridge, I have an erection. "

  • Report this Comment On November 05, 2012, at 6:18 PM, Gary06 wrote:

    PattyBilly, I'm hoping you were just joking? Putting 85% or 90% of your life savings into AAPL? No offense, but if that is the level of your investing experience, please do yourself a big, big, favor, and invest in a few nice index mutual funds instead, and just sit back and enjoy your retirement.

  • Report this Comment On November 06, 2012, at 5:10 PM, han810t wrote:

    I had a stop loss at 645 for Apple and sold it all - and made a tidy sum! Now I can pick it up much cheaper if I want. I need info like this to make intelligent investment decisions. I don't buy Apple products, but my hubby mainlines their products...and so do a lot of others. That said, Android is really outpacing Apple right now, so I'm going to wait.

  • Report this Comment On November 09, 2012, at 4:05 PM, nanook8132 wrote:

    I am currently inn Ningbo, Chuna. Looking at which retail outlets are generating the most sales based on trffic...it is no contest. the Apple outlets and other cell phone companies. It can be a bit decieving because the retailers are located in shopping malls together, ie. you can go from counter to counter buying iphones, HTC,Sony,Nokia, Samsung,Hosin...etc. I think you get the picture. But if you compare this retail sector with others in the malls and shopping districts, the cell phone retailers win hands down. The international travelers I am running into and the chineses businessmen tend to sport iphones with Samsungs Galaxy line a close second. I own apple stock and feel this is a good opportunity to increase my holdings, and feel that a target of 800 per share as per Golddman Sachs forecast is not out of the question...a stretch yes and maybe not until the Dec sales numbers roll in but still feasible.

    Hedges include Google with their strong Android presence and MS and Samsung despite their patent loss to Apple. The loss affected primarily older models that had already seen their day and remember apple and Samsung do about 4B in trade annually with each other.

  • Report this Comment On November 14, 2012, at 11:09 AM, nanook8132 wrote:

    The other brand that is really hot here in China is the Coolpad brand..They have stolen the look and feel of the apple iPhonesand tablets but operate on the Android software system..I'm sure off in the background the ghost od Steve Jobs is shouting "sue the bastards" but the devices look ....well cool...because they copied the apple design and look to have the same fluid creen touch . I will look into how to invest in them for everyone.

    ps you can buy really cool miked headphones and protectors here for about 5 bucks...sure beats the Apple or Sony brands I bought. Cheers

  • Report this Comment On November 14, 2012, at 11:13 AM, TMFNewCow wrote:

    TXinvestor,

    Sadly, no additional detail is provided regarding these commitments so we can't know what specific products Apple's putting money into.

    -- Evan

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