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THE LIVE BLOG 9:30 AM – 4:00 PM

9:33 AM — It looks like a real market rebound is underway now. We will probably hold our SPY long position for a few days now in the SPY model portfolio as it appears the SPY has formed a double-bottom and may be off to a near-term rebound at least. We’ll circle around and comment on Apple’s trading action today after the first hour is in the books.

9:42 AM — so it’s important to remember that this time tomorrow Apple’s P/E ratio will drop down to 13.4. That’s important because it will officially make this trading range the low end for Apple. For fiscal Q1, this $615 price-range would put Apple at an 11.39 P/E ratio. It’s trading at 11.4x next quarter’s earnings which is needless to say pretty extremely low.

11:01 AM — This is starting to look a lot like the April quarter for Apple. The market is pricing in bad numbers and everything seems to come down to the iPhone again. If Apple does report on the high end of the iPhone range near 29 million units, then we should see a pretty solid response to Apple’s earnings. But even if it reports in the low end of the range, it all just doesn’t matter. Remember what I explained yesterday. After Apple delivers this report, the stock will be sitting at the low end of the P/E range which will essentially bring this correction to a near-end. I think what we could see is Apple get down to the low 13′s and then bottom out together with the broader market. After that, it will be off to the races. So really, you just sort of need to be patient here. Apple will work itself out over the coming 1-3 week period.

If you go back to April and take a close look at the report versus the consensus, you will see the report wasn’t anything spectacular. Apple just merely reported on the ok side of things. They didn’t miss as people expected. Well we have the same sort of set-up here. Right now, everyone knows iPads came in a little light. We don’t know the full reasons behind that yet. Apple will explain it in the conference call. If it was channel management, then it’s going to be blown off. Then we have the whole iPhone issue. U.S. sales appear to be very strong. The rest is left to how the global launch went. If it went well, we could see Apple come in at the high end of the estimates. If the iPhone came in at the low end, then so will Apple. But notice that worst case scenario, if the report was god awful, you’re still talking about $9.50 at the lowest end on EPS. That would be at $45.00 TTM.

If the iPhone did a little better than expected and Apple reported at the high end of the range or if ASPs did better, we could see EPS up near $11.00 at the absolute best case scenario. If Apple was full of crap about its margins, then same deal. We could see much higher numbers. A 1% difference in margin is much larger than even a few million iPhone or iPad sales. It’s that big of a deal. If Apple’s OI&E happened to come in at $100 million higher than expected or if operating expenses were $200 million lower, you’re talking pretty sizable difference in EPS. But let’s suppose even if Apple came in at $9.50 in EPS. The TTM would be near $45.00. At that TTM level, you’re still at $675 at a 15 P/E or $700 at 15.5. This is important because it tells you that Apple is going to those levels sometime in the quarter. And if it goes all the way back up to $675 or $680, it’s going to take out the highs. No stock just goes all the way up there without a re-test. So that’s why really in the grand scheme of things, where Apple is trading today just really doesn’t matter to those who understand this and can wrap their minds around this analysis.

Now let’s talk about Apple’s guidance for a moment. Last year, Apple reported $13.87 in EPS. Knowing Apple’s management, they hate to guide for an EPS number that is below what they reported last year. It very seldom ever happens. While Apple does have the tendency to guide below analyst expectations, the fact of the matter is, it’s rare for Apple to offer EPS guidance or revenue guidance that is below last year’s numbers.

First of all, it can’t even be justified. WIth the iPad selling as strong as it is — even with this quarter’s shortfall — and with the iPhone selling as well as it is, it wouldn’t make sense for Apple to guide below last year’s numbers. They couldn’t justify it. After this update, I’ll go back and look. But I don’t think there is a quarter where they did guide below the previous year’s EPS.

Right now, the Wall Street consensus is at $15.41 on $54.98 billion in revenues. I have to admit that these are some highs numbers. I sort of wish the consensus was a little lower than that. Because those are very high. Bullish Cross is at $63 billion and $19.33 in EPS. This is without the iPad mini, but it is based on 55 million iPhones and 25 million iPads. So that estimate is based on very strong sales across the board. That number might be able to be raised up to $65 billion and $21.00 in EPS maybe. But even then, what is Apple supposed to do here exactly?

In the best case scenario, Apple might guide inline with analyst estimates. In fact, it would be smart for Apple to do so. Because of how bearish things are right now, it’s much better to give a good outlook today and worry about their performance later.

For example, if they guide right in-line with Wall Street estimates and then come in like 10% above that in Q1 that would be better than Apple guiding low this quarter and delivering a blowout. Because by guiding low, it will just cast more doubt on the company. So at this point, I think it’s far and away better for Apple to offer strong guidance and deliver a mild beat than to deliver weak guidance and deliver a blowout. By the time the blowout comes, it may not matter much.

I do think that Apple will probably guide strong enough on EPS given where Apple stood last year, but I do have some doubts about how Apple will do so on revenues. I think Apple could get away with a $16 EPS on $56 billion in revenue guidance. Then when they come in at near $21 in EPS on $65 billion, it would be a $9 billion beat on the top-line (16%) and a $5.00 beat on the bottom-line or 31%. That’s probably the sweet spot for Apple here. I even think they could push to $57 billion and $17 in EPS if they wanted to. That would be a 13% top-line beat which is right in line with how it has done in previous quarters.

I think a guidance number like that would cause the stock to gap-up about $50.00. But that gap-up would then be lost within 2-3 weeks. I do think Apple will need to come down to test the low 13 or even high 12 P/E ratio range before bottoming. That could bring Apple down to between $590 and $610 a share after reporting. Incidentally, that could very well take place right at the same time as the market is bottoming. So that is one big possibility.

Now that being said, I think it’s very important to remember what has transpired this week. Apple hasn’t printed a lower low this whole week. So far, this has been a green week for Apple. We will see how the stock ends up closing today. But there is still a very decent possibility that Apple has already bottomed.

For example, suppose Apple does close above $610 today and reports an excellent earnings number. The stock could potentially gap-up to $650 a share in the process right? Even if it then gives that back over the coming 1-2 week period, it may very well just re-test the $610 level, form one massive double-bottom, print a low P/E ratio, and this could coincide with a broad market bottom. The stock could then breakout above $650 and be off toward $700 a share. That is a very real possibility.

If you go back and remember the November lows, it felt just like it does today. Apple hit $365 on the Monday of the week in November where it bottomed right? It then rebounded up to $381 early in the week and re-tested the lows at $363. That’s actually right where it closed. The following Monday Apple began a non-stop rally to $644.00 a share. That bottom was real. Well that’s sort of where we could be right here.

1:00 PM — As I see the comments, I notice that a lot of people just didn’t really care to read the “most important update” in months I posted yesterday. Apple will trade at a low P/E ratio at some point in fiscal Q1. Most likely that will have to be early in the quarter given that Apple is down here already. In every recent quarter over the past year Apple has traded down into the low 13′s at least at once during each quarter. Last quarter, it was right after July earnings. This quarter, we will probably see the same. Once Apple reports, to get down to a 13 P/E flat, the stock would need to trade down to $590.00 a share. And that’s to get down to 13-flat. Take a look at the chart below and you can see why it is that Apple will probably trade down to that level at some point in the quarter:

If it merely matched the P/E low of this quarter, Apple would need to trade down to $613.93. So even if it gapped-up, just to merely match this quarter’s P/E, we would need to see Apple come back down toward this level. That’s why I’m not overly concerned right now. It needs to be down here. The early in the quarter the better.

2:10 PM – Again. The relevant issue today is that Apple needs to trade in the low 13 P/E ratio range before we see a clear bottom. So if Apple gaps-up on earnings, there’s a fair chance it will sell back off toward the lows for a temporary double-bottom. If Apple sells-off on the report, it’s likely to result in a clear capitulation for Apple. It will get down to a very low valuation and we will be at that low end of the range. That’s basically it. Apple shouldn’t have rallied to $700 to begin with. We explained it all yesterday. Apple should be trading down here right now. If things played out as they were supposed to, Apple would have sold-off down to $550 during the quarter, bottomed at week 5 and then rallied up to $620 a share going into options expiration and earnings. That’s how it should have gone. Apple rallying up to $700 a share was the stock getting ahead of itself. Now it’s corrected that and we’re sitting exactly where we should be.

I think the parabolic rally we saw in January and this correction both together provide with some extraordinary insight into Apple. I think we’re going to be able to forecast future corrections and bottoms with a lot more accuracy in the future. This correction speaks plainly enough that Apple will trade at a low-end and high-end of a range on its valuation. It makes perfect sense. The valuation gets low, it brings in buyers, things go to far, people take profits i.e. Apple is too cheap at 13, and took expensive at 16. It will largely trade between 14.5 and 15.5 for most of the quarter with extremes at each of the range. We’re about to see that extreme after this earnings report.

So don’t get too overly focused on the near-term. Remained focused on what comes next. If Apple gaps-down, what does that mean? If the gap-down results in Apple trading at a 13 P/E ratio, do you think Apple will trade at that low valuation all-quarter long?

If so, based on what evidence? How many corrections have you seen in Apple that hasn’t resulted in a v-recovery? How many in its history? Even the financial crisis collapse resulted in a v-recovery more or less. So if the stock gaps-down, you’re probably seeing the low point of the quarter. You will see a repeat of what happened after July. Apple will bottom, and then go on a rally toward $700 a share by year-end.

Here’s a clear-cut reason why. When Apple reports fiscal Q1 2012 earnings, you can expect EPS to come in somewhere around $52 to $54. Let’s say it comes in at $53.00. At $53.00 in EPS, if Apple were still trading down here near $630 a share, it would result in Apple trading at an 11.88 P/E ratio. Do you think the market is going to allow that to happen?

Put another way. Suppose Apple closed at $700 going into January expiration. If that happened and Apple reported $54.00 in EPS, Apple’s P/E ratio would drop to 12.96 without a gap-up. That’s without the stock going anywhere. The P/E would drop to such extremes. Apple has gone nowhere now in three quarters. That’s usually a huge indication that the stock is ready to roll. Think about it. Apple was sitting down here near the $610 area in March. It has gone nowhere all-year long. It gapped-up to $618 after April earnings. It gapped down from $600 to $570 after July earnings. And now it’s going into October earnings at $610? That is usually the maximum number of quarters that we see Apple trading at the same price-level going into its results.

To be perfectly honest with you, I fear more that Apple will rally to $800 a share ruining any prospect of putting on an April trade than I do of Apple rallying to $700. Apple rallying to $700 would be the best thing that could ever happen to the stock. We will see what happens. But it has been sitting down here for three quarters now. And you have to remember that the stock’s TTM will probably be somewhere in the $52 to $54 range which makes this current level ridiculously low. You’re talking an 11.3x January’s earnings. That’s earnings three months from now. This is not over the head of major fund managers. People get this.

2:35 PM — Oh and by the way, this entire correction relative to the slope of the prior trend makes this one fatty falling wedge which is bullish. That means once Apple breaks above the upper trend-line and holds above it, we could see a 100-point upside breakout. Right now, the upper trend-line is at about $630 a share. A breakout above that level after a re-test could result in an upside rally of $100.00. The previous big symmetrical triangle had a $700 price target and it was totally legitimate. This feels just as legit.

Think grand scheme of things. Forget about this quarter’s earnings impacts the stock near-term. The only relevant issue I care about in this report is Apple’s EPS and guidance. What is Apple’s TTM and what is Apple saying about next quarter. That’s it. Even if revenue comes in a little light, if their TTM can rise to $45.8 to $46.3 that would be great. Because it affirms everything I’ve talked about today and that is the fact that Apple will likely rally to $700 shortly after this report is behind us. Either gap-up THEN sell-off THEN double-bottom THEN rally to $700 OR gap-down THEN capitulation THEN bottom THEN rally to $700.

3:21 PM – So here is something interesting to think about. It would be better for Apple to gap-down after this earnings report than to gap-up. If Apple gaps-down after earnings, then it will hit $700 sooner than if it gaps-up. Here’s why. If Apple gaps-down on earnings, then it will hit its lows a lot sooner. We will get our extreme low valuation and we will get some technical extremes. Apple will not only likely gap-down under its lower b-band or at least fall under it, it will fall toward a really low RSI again on the daily chart. What’s more, Apple’s Chaikin Oscillator on the Daily has now officially fallen under -20M. Now we want to see Apple close under that -20M number. A gap-down tomorrow would probably have the same exact results after the July earnings gap-down. The stock would likely bottom within 3-sessions and then begin a multi-month rally. So in this sense, a gap-down would probably be better for Apple when it comes to the issue of hitting $700 a share by January.

A gap-up, on the other hand, would only work to extend this correction a little further. If Apple gaps-up, the P/E ratio is likely to be too high and Apple will then have to come back down and test today’s lows to form a double-bottom. By that time, if Apple had gapped-down, the stock could already be sitting at $650 a share. So you can see why a gap-down here might be preferable and even better overall from a risk-perspetive for those holding $655 – $705 January spreads. And just as I finished this paragraph, Apple’s Chaikin Oscillator on the daily has bumped up to -19.75. We really want to see a -20M close. That would be huge.

3:45 PM — Alright. Apple is now down to a -20.45 Chaikin Oscillator. We need a close at -20 or below. Apple sorely needs that extreme on the daily. What you need to understand about the daily indicators is that they forecast multiple bars. So a -20.45 would suggest a 5-10 bar rebound on something close to 8% in the green. So that’s why a -20M is so key for Apple. It suggests a big rally is ahead. And you’ve seen how accurate it is on the 60M time-fram. That’s going to be no different on the daily. It’s just a different time-frame.

4:01 PM — Alright. Here are our estimates. We didn’t get our -20M Chaikin Oscillator unfortunately. But here are the Bullish Cross expectations:

4:06 PM — ok. Apple doesn’t normally report until about 20 to 40 minutes after the close of trading. Between the close and the time Apple reports, you tend to see a lot of volatility as people position at the last minute ahead of the results.

4:33 PM — Alright. The takeaway from this report is that the revenue guidance number is very strong at $52 billion which more or less means that Apple is looking like it will come in close to our expected numbers next quarter. But Apple’s EPS guidance is really low. I think that was a mistake on Apple’s part. Because the two numbers don’t make sense together. I think the stock will more or less bottom soon. This is very much like July’s report. The QQQ is tanking though so it suggests that Apple is going to open a lot lower once Apple opens up.

4:40 PM – So again, let me repeat. The $52 billion guidance number is key. This is what tells you how the next quarter will be. At $52 billion in revenue, Apple will probably come in at $63 billion which more or less suggests that 55 million iPhone number that we originally laid out. So the guidance is fine. I wouldn’t read too much into Apple’s EPS number because it will always be like that.

But go back to last year’s numbers. Apple reported sales of $46 billion and $13.87 in EPS. You think they will report $63 billion and anything less than $20 in EPS? Nah. So I think that will come through.

Now as I see it, the real negative here is the impact to the TTM. The TTM has fallen to $44.16. That means at a 13 P/E, Apple’s bottom would be around $574.08. The top-end of the range would be around $684.50. Which again, pretty much means it will test $700. Apple won’t get up to $680 and then stop.

Though I think the way I would play this is I would probably sell the $655 – $705 spread on the rally up to the $680 area and then look to roll into February $650 – $680 spreads. That’s how I would play the coming period.

4:45 PM — Yeah. Look at the whole situation in terms of sentiment, valuation, fundamentals and what the $52 billion guidance numbers says along with Apple’s comments in the conference call, I expect there is a fair chance that we end up seeing a repeat of what happened in July. That means we should see some low print tomorrow that results in a very low valuation, very stressed technicals and then we will see a bottoming process lead into a rally. I think that’s sort of what you can expect from here.

The initial reaction will be negative because people won’t get passed the whole EPS guidance issue. But under closer examination they eventually will figure it out. I’m sure Apple will note some nonsense about stress to gross margins. But in reality, people know the margins. And Apple can’t put up $52 billion without 50 million iPhones being sold which means we get 47% or so on margins which in turn means like $20 in EPS. The problem with Tim Cook is that he doesn’t understand that some people might not get that. So they will view the $11.75 as negative.

4:50 PM — Remember, I explained that it would be better for Apple to gap-down than gap-up. It would be better for the long-term. You will see why. You want Apple’s P/E to be at at 13 to start the quarter. Just notice how calm I am. On scale of 1-10, I’m at a 2 in terms of how shaken up I am about Apple’s results. $574 would be a 13 P/E ratio.

4:53 PM — Well not as bad as I would have expected. I was sort of looking for Apple to gap-down to $580 a share. I would like to see a $580 a share print tomorrow.

4:57 PM — I have to listen to the conference call and do some further analysis. My first impression is that it’s not as good as I would have hoped, but I’m happy with the guidance number. A $52 billion revenue guidance number could mean a $63 to $65 billion revenue number which means $20 to $22/$23 in EPS. That’s very important. Trust me. In the end, you want to make sure the story remains in tact. Apple may have some issues remaining above $700 this quarter as a result of the shortfall on TTM, but it will likely test it and very likely hold above $680 which puts our $655 – $705 spread at around $30 at the highs. We could very well sell those on the rally to $680 and roll to February spreads which will be an easy call to make. I’ll get into why later.

5:15 PM — So here’s something to think about this for a moment. Apple’s gross margins last year on fiscal Q1 2012 was 44.68% right? Well in fiscal Q1 2012, Apple sold 37 million. Hold that thought. Be right back.

5:46 PM — Ok a few things to note here. Apple Mac ASP came in well above what I expected at $1,344.00. That was above the $1,260.00 I was expecting. iPods came in slightly below at $153.44 against my $157.00 expectations. iPads came in pretty much exact. We expected $535.00 and Apple came in at $535.05. But iPhones came in a little below our expectations. We expected Apple to come in at $648 and it came in at $636.38.

Now today’s shortfall in EPS was the result of a variety of factors that each contributed a little to the bottom line. First, Apple had a 1-off expenditure that impacted gross margins very negatively. Apple noted that it won’t see that one-off expense next quarter. That is great news. But that really really hurt the bottom line. Apple came in at 40.04% versus our expectation of 43.5%. We rose our gross margin estimate from 42% to 43.5% because we felt that the shortfall in iPads would impact gross margin favorably. While that may have happened, the one-off expenditure could have hit things pretty negatively.

Finally, one HUGE negative impact on Apple’s EPS was OI&E. OI&E was supposed to come in at around $200 million. Let me explain this. Because this is a huge deal and it sucks because it does impact things badly. Apple pretty much gives us the OI&E every quarter. They tend to beat their guidance by $5 million. They reported an OI&E number of -$51 million. That’s a $251 million swing. That really sucked. And the reason was as a result of a 1-off expense. I’ve never seen Apple like this on OI&E ever.

Let me tell you how messed up this OI&E miss was. If Apple had come in at its $200 million OI&E, then it would have reported net income of $11,144. The tax rate was 24.51%. This would have resulted in exactly $8.413 billion in net income on the dot. This is an exact number. With $8.413 billion in net income, Apple would have reported $8.87 in EPS. That is an exact $0.20 difference in EPS this quarter. That’s huge. And that sucks. It impacts TTM by $0.20 which impacts share price by about $5.00.

Now let’s think about the iPhone ASP and gross margin. Even if gross margin would have come in at a somewhat respectable number like 42%, EPS would have been around $0.50 to maybe even $1.00 higher. iPhone ASPs had an impact on revenue of $380 million. Which also had an impact on the bottom line of probably something like $0.10 to $0.15.

So when you consider this quarter, there are a lot of factors which impact the results. Interestingly enough, though, I do think that fiscal Q1 will be a pretty dramatic number largely because we saw Apple defer a lot of revenue into next quarter and that will in the end show through.

Right now, Apple’s TTM is $44.16. That puts Apple at a 13.76 P/E ratio today. At $574 — which we may possibly see soon — Apple would fall to a 13 P/E ratio. We will see whether that transpires here. But I do think it be somewhat difficult for Apple to hold $700 a share. I feel fairly positive that Apple will test that level sometime between now and January. But I do have some doubts now whether Apple will hold that level.

Thus, what I plan to do is this. Once Apple rallies up to $700 a share, there will likely be a period where you will be able to sell the $655 – $705 spread on overbought conditions. After selling that position we will likely consider buying the February spreads. Here’s why.

With Apple’s revenue guidance, I’m sure Apple is setting up to report around $20 in EPS. Apple’s TTM in January will probably be somewhere in the neighborhood of at least $50.00. That means Apple is likely to see some sort of a repeat of what we saw last year once it reports earnings in January. We will have to see where the stock is once it heads into the results. But there will be an opportunity to trade out of the $655 – $705 spread at $30 to $40 a contract to roll into a February spread or a January spread even on a pull-back of some kind.

10:30 PM — So I’ve sketched two different outlooks for Apple’s fiscal Q1 2012. This is sort of what I took from listening to the conference call. Apple gave us two numbers that were somewhat telling. The first was the $52 billion in revenues and the second was the 36% gross margin. I really don’t fully understand what is behind this inordinately low gross margin estimate because Apple didn’t really answer it well. It’s actually why Apple has guided EPS down to $11.75 on the quarter. But with those two estimates, I was able to arrive at two different outlooks. One would be where Apple reports $63 billion and $17.90 in EPS which would result in a 600 basis-point beat on Gross Margin guidance. Notice that Apple has beaten its gross margin guidance by extreme numbers in the past. We’ve seen 500+ beats on gross margin guidance. So that $63 billion and $17.90 EPS number is based on that sort of outlook. I’m pretty sure a lot of people are scratching their heads on this gross margin guidance. We’ll see what happens there. Under this scenario Apple’s TTM rises to $48.19. The high-end of the range for the April quarter would be $771 at the maximum highs. The low range would be $625.00 at the extreme lows.

The second estimates that we’ve put together is based on a normal beat on gross margin which would be around 400 basis points. Under this scenario, we have Apple reporting $63 billion in revenues and $47.14 in EPS. Apple guided gross margin to 36%. Apple came in at 40% last quarter. And I don’t see how Apple reports a sub-40 number period. We’re going to see high iPhone numbers next quarter. Just to give you a sense of the comparison, last year in Q1 with the high proportion of iPhone sales to iPad sales, we saw a 44%+ gross margin number. Now Apple has guided for 36%. That’s an extreme difference from a year ago. I can’t imagine that margins are that shitty on the iPhone 5. In fact, we know that they’re not. So I really don’t know what the hell Apple is doing here. I just don’t get it at all. They should report about a 44 to 45% gross margin number. What should happen is we should get $63 billion in revenue and roughly $20 in EPS. But I can’t imagine that Apple is guiding gross margin at 800 basis-points under actual. If they did that, I would never ever trust Apple’s b.s. guidance every again. So I have to figure there is something else going on here. Thus, you have to imagine it’s going to come in at between 40% and 42%. If that’s the case, then EPS is going to come in at between $16.85 and $17.90. Both estimates are based off of the same revenue breakdown. See below:

Here’s the bottom line. This unexpected gross margin hit is going to cause a $2.50 EPS shortfall for the year on our expectations. In terms of how Apple will trade during the first quarter of next year, I expect Apple will continue to trade between the $650 and $700 a share range at least until April earnings. And then we will have to see how Apple’s margins do at that point in time. Apple claimed at its conference call that fiscal Q1 will represent “the peak of the cost curve” which suggests to us that gross margins should improve from 40% back up to those higher 42% levels. If that’s the case, then the EPS hit on the year would be $2.50. If those costs continue into future quarters, the EPS hit will be greater which could in turn lead to a lower overall EPS on the year.

Right now, we’re expecting about $64.00 with this shortfall. At a 15 P/E ratio, that puts Apple at $960 a share near October. At $960, it’s too close to $1000 not to reach $1000 a share. Thus, despite the gross margin shock to Q1, the $1000 2014 price-target isn’t in any immediate danger. We would need EPS to probably fall down to under $60 for that to happen. For now, it’s fine. But Apple’s January – April will be a $620 to $750 quarter. That will be the range after Q1 thanks to the gross margin hit. We’ll see how this goes. Apple could still report a much higher EPS number if Apple does report a similar revenue beat we saw last year. If Apple comes in and beats revenues by 26%, then we will get into that $20 EPS range which brings things back to normal.

For example, a 26% beat on revenues — which I guess is possible if the iPad Mini does extremely well and iPhones do a lot better than expected — would result in $65.52 billion in revenues on the quarter. At $65.52 billion in revenue and at 40% in gross margins, we would see EPS at $17.72. With that same revenue beat and gross margin at 42%, Apple’s EPS would be $18.75. So you see, unless Apple beats its gross margin by a record number and unless revenues beat by last year’s margin, then Apple’s EPS will fall short. This is sort of the bi-product of margin compression. Margin compression is the worst thing you can see for growth. Because it has such a dramatic impact on the bottom-line. A 2% different in margins has a huge impact. You can see that here.

It’s still hard to see why Apple is being so cautious considering the fact that gross margins did come in at 40% this quarter which would imply that in a better product mix quarter such as Q1 with 55 million iPhones being sold that gross margins can only really come in at 43 to 44% as we saw last year. But I guess we’ll see. The good news is that since we know this all ahead of time, we know that Apple’s post-Q1 quarter is going to be contained in a range between $620 and $750 a share. We know that from now. So we can plan accordingly.