Five numbers that could end — or extend — Apple’s eight-week rally

What to watch for Monday when the company reports its fiscal fourth quarter earnings

Apple’s (AAPL) shares have been on a tear since late August, soaring nearly $75 (more than 30%) to close Friday at an all-time record $314.74.

Whether that proves to be the top of a long bull run or the start of an even bigger one depends on how investors react to the results scheduled to be released at about 4:30 EDT today.

That Apple will report a record fourth quarter is a given. The Street is looking for earnings of $4.06 on revenue of $18.86 billion — a 54% increase year over year. Anything less will be a disappointment.

But the analysts who dial in to Apple’s 5 p.m. earnings call (or tune into the free webcast here) will be asking for details that go deeper than the top and bottom lines — things like iPad profit margins, iPhone inventory levels and the length of Apple’s NAND and DRAM contracts.

We like to keep things simple. Here are the five numbers we’ll be listening for:

Analyst's forecasts. Click to enlarge.

iPhone unit sales.
Ever since the June launch of the iPhone 4, Apple has been selling iPhones as fast as it can make them. The problem is, nobody but a handful of executives in Cupertino knows how fast that is. Among the analysts we polled (see chart at right), Q4 iPhone sales estimates range from a low of 8.4 million (which assumes sales were constrained by short supplies) to a high of 13.5 million (assuming extraordinary demand and production that kept right up with it). The median estimate is 11.6 million, nearly 60% above the 7.4 million iPhones Apple sold in the same quarter last year.
iPad unit sales. A runaway hit in a category that didn’t exist six months ago, the iPad is an important new revenue stream for Apple — the X factor that sent the stock into uncharted territory these last two months. It’s also another huge unknown, a fact that is reflected in unit sales estimates from our analysts that range from a paltry 2.4 million to a hard-to-imagine 6.2 million. Investors ought be delighted with anything close to 5 million. That doesn’t mean they will be.
Mac unit sales. This is an easier number to track, thanks in part to the NPD Group, which surveys domestic PC retail sales every month and is scheduled to issue its September report today around 2 p.m. EDT. NPD has been reporting Mac sales up 23% year-over-year so far this quarter, which would yield a total of 3.75 million Macs. The more optimistic Apple watchers are looking for 4 million or higher.
Gross margin. Some analysts believe that the gross margin ratio — revenue minus cost of goods divided by revenue — is the most important number of all, because it tells them how efficiently Apple is turning sales into profits. Three months ago, Apple warned investors that fiscal fourth-quarter margins might be as low as 35% — far below the 39.1% the company reported for Q3 and nearly 7 points less than Q2’s 41.7%. With iPad production ramping up and commodity prices falling, the Street is looking for something closer to 38%.
December guidance. These are the numbers savvy investors have learned to discount but which can still send the stock spiraling down in after-hours trading. Apple traditionally guides “conservatively” — which is to say it low-balls its forward-looking estimates and then beats them handily three months later. The Street is looking for Apple to report earnings of $5.04 next quarter on revenue of $22.22 billion. In a note to clients Friday, Bernstein’s Toni Sacconaghi noted that over the past 10 quarters, Apple has guided 2.9% below consensus revenues and 15.4% below consensus EPS. If Apple breaks that pattern and guides anywhere close to the Street’s Q1 consensus, look for shares to soar in late trading Monday.

We’ll be monitoring Apple’s 5 p.m. EDT earnings call, and you can too by clicking on the company’s Quicktime webcast. We’ll compare the actual results to the published estimates and post our quarterly Earnings Smackdown — along with a list of the best and worst analysts — early Tuesday.

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Five numbers that could end — or extend — Apple’s eight-week rally