The rearview mirror has the best view

Apple beat EPS estimates by 10 cents, but guided 10 cents lower for the 3rd quarter.(1) The stock went up to 167 as the news was released, but is now trading down, currently below 159. It's a mixed bag as to what it will open at tomorrow. Some of the disappointments may be that expectations were so high, Apple would have had to announce $1.50 per share, over $8 billion in revenue, and $1.20 EPS guidance for Q3 for the stock to go up. Also, gross margins fell, from 35.1% to 32.9% when comparing quarters year-for-year. But the positive news is goode enough to justify an entry point in the next few weeks, if Apple stays at these prices:

Apple shipped 2,289,000 Macintosh® computers during the quarter, representing 51 percent unit growth and 54 percent revenue growth over the year-ago quarter.

iPod sales increased by 1%, and did not fall as expected.

It looked bad for Apple yesterday as the stock dropped as much as it rose on Monday, but at midnight, Apple revealed that it agreed to buy PA Semi (2), a small microprocessor design company, which will give the computer company tighter control of its supply chain, as well as an edge on smartphone and MP3 competition (although Apple seems to be moving away from the MP3 space and into mini-computers).

PA Semi makes ARM processors used in small devices.(3) The Apple Newton and Palm PDAs used Advanced RISC Machines (ARM) processors (4, 5) as well as Digital set-top boxes, cameras, TVs, and gaming machines. ARM was spun out of a collaboration between Apple Computer and Acorn Computer Group in 1990.(6) One of their strengths is creating low power chips, such as a 64-bit dual core microprocessor developed last year that they claimed was 300% more efficient than any other on the market. This may signal a departure by Apple from its recent exclusivity with Intel, which is notorious for driving profit margins down while increasing their market share. Intel is promoting their new Atom chips for handheld devices. Apple is said to have purchased PA Semi for $278 million in a deal negotiated in Steve Jobs' home. The acquisition didn't seem affect the stock, except to possibly keep it above water during the day.

Next up: Visa earnings on Monday. Might be a good straddle play. Also, Saturday is the deadline for Yahoo to accept or decline the Microsoft offer.(7) It looks like they already made their decision, but you can't know for sure until Sunday. If the answer is still no, Microsoft will take the offer to Yahoo shareholders.

Sources:
1. Apple Reports Record Second Quarter Results
2. Apple Buys Chip Designer
3. ARM Powered Products
4. Apple website: MessagePad 120: W/Newton 2.0 OS Specifications
5. Palm -- About Palm, Inc
6. ARM Milestones
7. Microsoft CEO willing to walk away from Yahoo bid