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Apple, Microsoft Earnings Lead Trillion-Dollar Tech Tuesday

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July 21, 2015
Apple, Microsoft Earnings Lead Trillion-Dollar Tech Tuesday

It’s been tagged “trillion-dollar tech Tuesday” because of the cumulative market capitalization of the technology companies that are opening their quarterly books today.

S&P 500 (SPX) constituent Apple (AAPL) is likely the domineering player with a market cap of $747.7 billion as of Monday’s close, thanks to a 40% surge in its stock over the last 52 weeks. The maker of all things “i” reports after Tuesday’s bell.

Analysts reporting to ThomsonReuters are looking for fiscal Q3 per-share earnings of $1.79 compared with last year’s comparable $1.28. Revenues, driven primarily by iPhone sales, are forecast to jump nearly 32% to $49.31 billion. Apple did not provide earnings guidance in April but did project revenues to range from $46 billion to $48 billion.

The iPhone is the power behind Apple’s growth and the iPhone 6 and the larger-screen iPhone 6 Plus are the big drivers, generating nearly 70% of Apple’s revenue in the prior quarter. Though summer tends to be a tough sell for on-the-market iPhones —everyone’s waiting for the next model before buying—analysts think this quarter could be an outlier.

FIGURE 1: SPX RECORD: DOES APPLE HAVE THE JUICE?

The S&P 500 (SPX) was flirting with fresh record highs ahead of its constituent Apple’s (AAPL) post-close earnings report. The pending report leaves Wall Street wondering if SPX’s next leg lies solely with Apple’s performance? Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Trump Card is China

China has embraced the latest iPhone version in record droves, sales data show. But given the economic woes there and the unpredictably worsening stock market, analysts are worried that any negative news for Apple could be China-based. Some industry analysts are predicting iPhone 6 sales will slow throughout the remainder of the year.

Analysts also will be picking apart the first look at sales for the Apple Watch, for which Apple has not offered a peep of insight. This is the firm’s first iteration of the smartwatch and many have agreed with CNET.com’s description of it as more of a “fashionable toy than a necessary tool.” Let’s see.

Listen for commentary about next-generation products, which is what could keep the stock’s upward trajectory investors have become accustomed to.

Tech Rings in From All Over

Search engine and content creator Yahoo (YHOO) is also on the after-hours docket. The stock has plunged some 22% so far this year and analysts are bracing for a sharp decline in earnings.

The real news will be in how the tech company plans to spin off its $30 billion stake in China-based Alibaba (BABA), which it announced last week. The e-commerce spinoff will become part of a new firm, to be called Aabacoa Holdings that will own about 15% in the Alibaba Group and what the company described as a “newly formed entity (that) will own Yahoo Small Business,” according to a filing with the Securities and Exchange Commission.  

The last time Yahoo unloaded half of its investment in Alibaba, it got hit with a hefty tax bill to the tune of $2 billion. No one wants to see that happen again. Yahoo expects to clear out the deal once the expiration of its lock-up pact ends in the fourth quarter. No one knows what the company will do with the money nor has the company explained what the small-business unit will do.

Meanwhile, analysts are looking for per-share income of $0.18 on topline sales of $1.03 billion. They’re really looking forward to hearing how the onetime boss of search is going to remain relevant in a world dominated by Google (GOOG, GOOGL) and with Microsoft nipping at its heels.

Speaking of Microsoft (MSFT), it’s on our radar today too. Analysts look for Mr. Softy to report income of $0.56 a share on sales of $22.06 billion, a near 6% drop year over year. It’s another tech leader that’s looking to reposition itself from a PC-based software giant to a cloud- and mobile-based leader.

It’s not been an easy path and the company is hoping its July 29 free upgrade to Windows 10 will pave the way to a broader customer base for enterprise- and cloud-based services. Options traders are looking to potentially capitalize on the buzz: Microsoft volatility is up, trading in the 73rd percentile early Tuesday, according to TD Ameritrade’s thinkorswim® platform.

I’d Wait in Line for This

The earnings blast drops us in at Chipotle (CMG). The Mexican fast-casual hangout that touts its fresh ingredients is expected to turn out top-line sales of $1.22 billion, up 16% year-over-year, with a whopping 27% hike in per-share income of $4.46, according to Thomson Reuters’ survey.

Some of this is attributable to a price hike because of the skyrocketing costs of beef. Same-store comparable results are expected to rise 6%, which would be considered robust under normal circumstances. It’s unclear how much of the same-store sales growth is attributable to the price increases, however, which means that management’s conference call will be as important as always. The same can be said for all firms reporting. Remember, as we look to dollar impact, commodities ripples, and more, what’s coming ahead is typically more important than a quarter that’s already in the books.

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