It may be an eventful day.

The link above is to Apple’s announcement of its upcoming conference call to announce financial results for the fourth quarter of fiscal year 2006, including results for the full year. (Apple’s fiscal year 2007 started on 2006.10.01 or thereabouts.) You can listen to the live Webcast of the conference call, or go back to the same page after about 8PM EDT tonight for the replay. If you don’t need the audio immediately, however, by far the easiest way to get it is simply to subscribe to Apple’s Quarterly Earnings Results Podcast. When the audio downloads, you’ll want to check it – last quarter, the file identified as Q3’06 Apple Quarterly Earnings Call was actually the conference call from several quarters earlier. It was corrected within a few hours.

We’ve been trying to get back in the saddle for MDJ and MWJ since the publisher’s recent cardioannoyance, but for some reason the follow-up to the Wi-Fi Hacking Saga has not been winning the battle against the writer’s constant enemy, the blank page. We may jump directly to this story to get a kick-start, because, after all, what might analysts want to ask Apple’s management?

  • As a reminder, here is Apple’s chief financial officer, Peter Oppenheimer, giving guidance for Q4 at the end of Q3 (MDJ 2006.08.04, MWJ 2006.08.05):

    Looking ahead to the September quarter, I’d like to review our outlook, which includes the types of forward-looking information that [director of shareholder relations] Nancy [Paxton] referred to at the beginning of the call. For the quarter, we’re targeting revenue between US$4.5 [billion] and US$4.6 billion.

    We expect the total quarterly cost of non-cash stock-based compensation to be approximately US$40 million. We expect GAAP gross margins to be about 28.4%, reflecting approximately US$6 million related to stock-based compensation expense. Without that expense, we expect non-GAAP gross margins to be about 28.5%. We expect GAAP OpEx [operating expense] to be about US$785 million, including about US$34 million related to stock-based compensation. We expect non-GAAP OpEx to be about US$751 million.

    We expect OI&E to be about US$100 million, and we expect the tax rate to be about 32%. We expect to generate GAAP EPS of about US$0.46 to US$0.48, which includes an anticipated US$0.03 per share related to non-cash share-based compensation expense. We expect non-GAAP EPS to be about US$0.49 to US$0.51.

    Nonetheless, the consensus estimate from analysts tracked by Thomson/First Call is $0.51 of GAAP earnings on US$4.67 billion in revenue. Apple’s guidance is historically conservative, because Wall Street punishes companies far more for missing their own estimates than it does for consistently underestimating earnings, so this may not be too far off base, if all goes well.

  • Everyone expects Macintosh sales to be up year-over-year and even sequentially, both due to strong back-to-school Intel MacBook sales and the long-expected release of the Intel-based Mac Pro. The former seems to us a fairly solid expectation, but the latter – well, we’re not sure how many people are giving up dual-2.5GHz or quad-2.5GHz Power Mac G5 systems for quad-3.0GHz Xeon systems when neither Microsoft Office nor Adobe Creative Suite are yet Intel-native. Final Cut Studio is universal, so media production may push professional sales to a nice gain, but that’s far from guaranteed, especially given how much Power Mac G5 sales had been declining over the pas year.

  • Apple refreshed iPods last month, but while the new iPod Nano and iPod Shuffle have cool new designs, the iPod itself does not, and analysts seem worried that the minor refresh isn’t enough to push lots of new sales. What’s more, rumors of “the true video iPod” refuse to die, and the more press they get, the more customers may be likely to wait for this mythical beast rather than buy a barely-upgraded video iPod now.

    (It’s also becoming clear that no matter what Apple is working on, there is nothing that can kill the irrational belief in the “true video iPod,” particularly irrational given that all rumors suggest it will work with a touch-sensitive display. This, mind you, is from the same company whom the same sites castigated for being unable to make a scratch-resistant iPod without a touch-sensitive screen. Egad.)

  • Although Apple has largely concluded its internal investigation into backdating of stock options, the company has taken no action other than to “proactively inform the SEC of its findings,” and the board has not yet ruled on waht to do about those findings. Former CFO Fred Anderson, whose skill in getting Apple out of its cash crisis in 1996 and 1997 cannot be overvalued, had to resign from Apple’s board of directors over the findings, and may be implicated in a handful of option grants that were backdated. Other reports say that former Apple chief counsel Nancy Heinen may have also received improperly dated options.

    Remember that backdating option grants was legal before the Sarbanes-Oxley Act of 2002 imposed a requirement that all option grants be reported to the SEC within three business days of the grant date. Under Sarbanes-Oxley, backdating more than two days would make it impossible to fulfill that requirement. Before that, companies could backdate option grants if they wished, provided that any benefit to the grantee from changes in the stock price between the date listed on the grant and the date it was actually made were properly accounted as compensation expense. Apple apparently failed to do that in up to 15 cases, and that’s an accounting error. If anyone uncovers evidence that anyone at Apple deliberately tried to conceal a backdated option grant to avoid the tax issues or deceive the board of directors, the public, or the government, that could be a criminal offense. A few analysts may, possibly, just maybe, have questions about this.

  • As if this weren’t enough, Apple announced yesterday that it had shipped an unknown number of Windows video iPods shipped since 2006.09.12 (but believed to be less than 1% of total shipments) with the Windows RavMonE.exe virus. What’s more, the company seems to have bypassed its entire marketing and PR staff to write one of the most childish avoidances of responsibility we’ve seen from the company in years:

    As you might imagine, we are upset at Windows for not being more hardy against such viruses, and even more upset with ourselves for not catching it.

    Both Mac-specific blogs and other blogs have noticed this blame-passing, but we think it’s even worse. Apple markets itself as a company that provides easy solutions – products that “just work.” Yet when its own manufacturing processes (whether in-house or contracted) have made a serious error, the first blame from Apple goes to Microsoft.

    A company that prides itself on providing solutions would not blame Microsoft and link to trial versions of third-party software to fix the problem. The Apple that presents itself in advertisements would provide a free, limited, supported, non-trial version of one or more anti-virus programs that remove the affected virus on any system with an iPod connected, not just for 30 days, but in perpetuity. Oh, and they’d get rid of that buck-passing “it’s Windows’ fault” language, too. Be upset at Windows all you like, but don’t blame Windows for your error in not checking iPods for viruses – especially when you use the plethora of Windows viruses in ads as a reason to buy a Mac. As one of the linked bloggers put it:

    By the way, Apple, we’re all upset at Home Depot, too, for not making desks hardy enough to withstand the blast of an exploding Powerbook battery. Ass.

    Update: Intego notes that even if you use a Mac, it’s worth taking steps to eradicate this virus, especially since it can propagate if you run Windows on an Intel-based Mac under Boot Camp, Parallels, or even on a PowerPC Mac using VirtualPC. Good point.

  • And finally, while analysts may want to inquire about all of these topics and more, they may not get the chance. According to Herb Greenberg of MarketWatch, Apple may not even be able to provide guidance for the December 2006 fiscal quarter.

    Why? Options backdating. Just before WWDC 2006, but after the Q3 earnings announcement, Apple said that evidence of irregularities meant “that the financial statements and all earnings and press releases and similar communications issued by the Company relating to periods commencing on September 29, 2002 should therefore not be relied upon.” That includes the Q3 results from July 2006. Once Apple figures out the accounting impact of the backdated option grants, it will file amended (corrected) financial forms with the SEC for all affected periods.

    But as of this moment, the company has yet to do so. Greenberg quotes analyst Bob Renck:

    According to a report by Bob Renck of R.L. Renck & Co., who rates Apple a “sell,” “When companies are not current in their filings, they are severely restricted in the comments they can make about current or future results.” Renck says his conversations with other companies that have been in a similar situation suggest that “while we might expect comments on sales and perhaps even gross margins, it is difficult to imagine Apple management being in a position to comment on net income or comparisons versus the prior year below the gross profit line.”

So with all that in the air, Apple’s executives respond to questions from analysts this afternoon, live and without a net. What could possibly go wrong?