Apple on a win streak as rivals regroup

Customers shop at the Apple store at the Glendale Galleria in Glendale, California December 8, 2010.

SAN FRANCISCO (Reuters) - Apple Inc enters 2011 on a roll, a cash-generating machine with surging sales across its product lines -- even as it confronts a sea of restive rivals determined to halt its stunning run of success.

As quarterly earnings approach next Tuesday, expectations are that Apple's revenue should easily swell more than 50 percent. That would be a sparkling performance for a company of any size, much less one with a market value north of $300 billion.

With such momentum, what could potentially derail this train?

Gleacher & Co analyst Brian Marshall said there's a danger that Apple could become a victim of its own success. "If expectations get too far ahead, there's no way the company can live up."

Still, Marshall had no concerns about Apple's holiday season, a sentiment shared on Wall Street: "I don't think there was any weakness at all in the quarter."

Apple's advantages are well-documented: the global spread of the iPhone, which should sell more than 60 million units this year; the rise of the iPad, which single-handedly created the tablet computing market; and continued strong growth from the resurgent Mac line of computers.

The most valuable U.S. company behind Exxon Mobil, Apple added more than $100 billion in market cap in 2010. Shares have already moved up 7 percent this year, buoyed by the long-awaited launch of the iPhone with No. 1 U.S. carrier Verizon Wireless.

With its share price soaring, analysts and investors are debating the best way to value Apple. The company trades at roughly 17 times forward earnings, versus 12 times for Microsoft and 21 times for Google.

But some argue for excluding Apple's massive, $50 billion-plus in cash and investments from the valuation, meaning Apple trades at closer to a 15 multiple.

Brian White, an analyst with Ticonderoga Securities, said that by that yardstick, Apple looks positively cheap.

"At 15 times ex-cash, they're not really expensive," he said. "It's tough to really scratch your head on that kind of multiple with the kind of growth they've been delivering."

For White, the biggest threat to Apple is Google and its Android mobile operating system, which has seen torrid growth as it crops up on a slew of both iPhone and iPad rivals.

Last week's Consumer Electronics Show showcased dozens of Android-based devices, underscoring the determination of Apple's competitors.

"Almost everybody else is using Android," he said. "Looking out two to five years, they (Apple) need to make sure that Android doesn't do what Microsoft did to them in the PC market."

STRONG HOLIDAY

The consensus benchmarks for Apple's fiscal first quarter, which includes the holiday shopping season, are roughly 15.5 million iPhones, 5.5 million iPads and 4 million Mac computers. As usual, investors will be expecting more.

"The only surprise in earnings is if there is anything less than glorious news," said Barry Jaruzelski, a partner at consulting firm Booz & Co.

Although he says demand for Apple products will continue to surge, and sees a particular opportunity in the corporate market, Jaruzelski said the company's biggest vulnerability may be in acquiring supply of crucial parts.

"One of the greatest risks they have to actively manage is around supply constraints and availability, things are probably running very very tight," he said. "Even when things are going right, they're running right on the line.

Apple is a voracious consumer of touchscreen displays and flash memory, among other components.

An out-sized surprise in Apple results has become an article of faith among investors. The company has beaten Wall Street's estimate by an average of 29 percent over the past two years, and bested on revenue by 9 percent on average.

Apple is expected to report earnings of $5.37 a share on revenue of $24.4 billion, according to Thomson Reuters

I/B/E/S.

According to StarMine's SmartEstimate, which places more weight on recent forecasts by top-rated analysts, Apple should post EPS of $5.47 on revenue of $24.5 billion.

One of Apple's few weak spots has been gross margin. Last quarter, Apple's first margin miss in at least two years raised the concerns of some investors who feared that its profitability had peaked.

Wall Street is forecasting a gross margin of 37.3 percent, up slightly from the previous period. The company benefited

from favorable component costs in the quarter, analysts said.

(Reporting by Gabriel Madway; Editing by Gary Hill)