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What are lots of reasons why income will go up? Q1 is behind us and it was flat. AAPL itself projects a down Q2. Q3 and Q4 are typically the slowest of the year as people hold off purchases for the holiday season.

You have to decide whether you are talking about comparable quarters or consecutive quarters, with a seasonal business like this. Q1 was flat if you are talking about comparable (Christmas) quarters, but it was definitely not flat if you were talking about consecutive quarters, with revenue up from $36b to $55b and net income up from $8b to $13b.

Here are the last 5 quarters:

Qtr End Rev Net
Q1 Dec'11 46 13
Q2 Mar'12 39 12
Q3 Jun'12 35 9
Q4 Sep'12 36 8
Q1 Dec'12 55 13

Apple and everyone else of course expects Q2 to be down from Q1, but more or less flat from last year's Q2, with Apple projecting revenues of $41-$43b (analysts' forecasts are more like $45b), whereas earnings may be down slightly to $9-10b. For the full year, last year's earnings (or the last 4 quarters' of earnings, same number) was $42b, and analysts are generally predicting those to come down, to about $40b.

I don't have much of an opinion about whether earnings will go up or down in the next few quarters, but I think Apple's long term prospects are quite good, as they control the most profitable part of the market, they have an integrated product that works very well, they have very strong R&D capabilities in a growth industry, and they continue to gain market share in operating systems in general, albeit with some stronger competition from Android lately. They have also had some manufacturing hiccups that they will soon be over, and their margins are likely to increase on the new products that they brought out last quarter.

All told, I think they are a very safe bet to retain half of last year's earnings, which would still put them reasonably priced (about 13 times earnings), and it is much more likely that earnings remain about $40b, with good prospects of doing even better in coming years.

Regards, DTM
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