The biggest mystery to come out of Apple’s Q3 earnings conference call Monday — besides the state of Steve Jobs’ health — was the “future product transition” that CFO Peter Oppenheimer mentioned as one of the three reasons he expects the company’s gross margins to fall from 34.1% to 31.5% over the next three months.

For a company that doesn’t talk about future products, Apple spent a lot of time Monday talking about this one. Oppenheimer mentioned this product transition at least four times during the call, hinting at “state-of-the-art products at pricepoints our competitors can’t match” and adding coyly — and illogically — that he couldn’t talk about it.

So, of course, that set off a round of overnight speculation. See, for example, here.

Could it be a revamped Apple TV? No, that’s a product that sells in numbers too small to account for the hundreds of millions of dollars it takes to do that kind of damage to Apple’s gross margins.

Could it be the long-awaited tablet Mac? No, that would be a new product, not a product transition.

Could it be a revamped iPod line, with iPod touch-like controls and solid state drives to replace the old hard drives? That’s more likely. After all, Oppenheimer warned of the same kind of product transition costs at this time last year, and what came out of it was the iPod touch.

Could it have something to do with the MacBook line? That’s what Piper Jaffray’s Gene Munster suggested in a note to clients Tuesday morning. Overhauls of the MacBook and MacBook Pro are overdue, he pointed out, and delivering them just before school starts — perhaps at prices starting at $999 — would make a lot of sense.

On the other hand, Apple (AAPL) is a company that thrives on dropping hints and then clamming up, letting fevered speculation do the work of softening up the market.

Maybe that’s what Peter Oppenheimer — taking a lesson from his CEO — was really up to.

Fasten your seat belts.

Although Apple should report better-than-expected quarterly earnings after the close Monday — it almost always does — its shares could be in for a bumpy ride on Wall Street.

Apple’s (AAPL) stock price — having bungee-jumped from $200 in late December to below $120 in mid-March and then back up to $190 in mid-May — has been drifting lower ever since, despite the high-profile launch of a new iPhone and the expectation of sharply higher earnings.

According to Thomson Financial’s survey of analysts, Apple is expected to report net income of $972.6 million, or $1.08 per share, on sales of $7.4 billion. In the same period last year the company earned $818 million, or 92 cents a share, on sales of $5.4 billion.

But these days, even 18% earnings growth from Apple is unlikely to impress the Street. The company could report its best third fiscal quarter (our calendar Q2) yet and still lose market value.

By most accounts, Q3 was a strong one for Apple. In a report to clients issued Friday morning, Piper Jaffray’s Gene Munster saw good news in all three of its key divisions:

• Macintosh: He believes Apple will announce quarterly sales of 2.35 million Macs — 33% year-to-year growth in an industry that is growing at half that rate. (On Wednesday Gartner reported that Apple is now the No. 3 computer maker in the United States. See here.)
• iPhone: Munster is expecting Apple to report that it sold 730,000 iPhones in Q3 — slightly better than the 700,000 Apple already reported. (The 1 million iPhones that Apple claims flew off the shelves in three days last week don’t count until next quarter.)
• iPod: Although many had predicted that the iPhone would cut into iPod sales, Munster is seeing little cannibalization so far. He expects Apple to report 10.5 to 11 million iPods sold — up from his previous estimate of 10.25 million.

But Wall Street’s antennae are finely tuned for disappointment. Although Apple just had a record-breaking, made-for-TV product launch — with people still queuing up for the iPhone 3G a week after it went on sale — none of that produced much traction in Apple’s share price. Investors seemed to concentrate instead on the fact that Apple’s iPhone activation servers melted down, that most of their stores ran out of product and that the new MobileMe suite of Web services is a mess that the company still hasn’t cleaned up (see here).

Shaw Wu, the top Apple analyst at American Technology Research, is focused on the company’s gross margins, which came in surprisingly low last quarter for reasons that were never adequately explained. He’s expecting gross margins of 33.5%, slightly higher than the company’s 33% guidance. But he notes that lower component prices last quarter did not translate into higher gross margins. “Investors chose to ignore this and gave AAPL a ‘free pass,’” he writes. “Given the macro environment, this quarter investors may not be so forgiving.”

In an article entitled “Why I’m Shorting Apple Ahead of Earnings” that got a lot of attention on the Seeking Alpha website last week, investor Ben Shuleva ticked off a litany of reasons he expects Apple’s share price to get punished after Monday’s earnings report, from cutbacks in education budgets that could eat into Apple’s back-to-school sales to the way Apple books iPhone revenues over 24 months, an accounting complexity the Street still doesn’t understand, no matter how many times Apple explains it.

“I am not bearish on Apple long-term,” Shuleva wrote. But… “I am willing to make a significant bet that on a short-term basis, Apple’s share price will deteriorate.” (link)

Finally, there’s the matter of Apple’s guidance for its fourth quarter, which ends in September. Peter Oppenheimer, Apple’s chief financial officer, has been known to send the stock into a tailspin by issuing numbers that are miles below Wall Street’s expectations. “We believe AAPL will likely continue its tradition of conservative guidance,” writes Wu, with considerable understatement.

The question is, how conservative? If it’s the usual 9% or 10% below expectations, it shouldn’t make much difference. Anything lower could damage the stock. And if Oppenheimer offers guidance that’s better than expected, who knows, the stock might actually go up.

Apple executives will discuss the company’s Q3 quarterly result and offer guidance for Q4 in a conference call Monday at 5 p.m. EDT (2 p.m. PDT). Apple plans to webcast the call (click here). We’ll be dialing in — and live blogging — at Apple 2.0.

It was mid-May the last time FBR Capital Market analyst Craig Berger checked with his contacts in Apple’s supply chain, and what he heard then was bad news: orders for iPhones for the second quarter had just been been cut 25%.

But FBR went back to those same sources earlier this month, and on Thursday he and Robert Pikover reported “big positive revisions” in Apple’s so-called build forecast.

“Our latest checks show forecasted calendar 3Q and 2008 iPhone build volumes have been revised significantly higher, with more than 15 million 3G iPhones plus two million old 2G iPhones forecast for 2008,” they wrote in a note to clients.

Apple’s official target is to sell 10 million iPhones in 2008.

In other Apple (AAPL) supply chain news, Berger and Pikover report:

• More iPods: iPod builds were revised up 15% since their last report, with strong Classic and Nano builds offsetting slighly lower iPod touch builds — a surprise given the number of iPod touches being given away this summer in back-to-school sales.
• New iPods: “We hear a new, lower priced Nano may be coming, as well as refreshed versions of the Touch and Classic,” they write.
• More Macs: Apple’s 3Q notebook and desktop build volumes were revised up by 10% and 20%, respectively.

In summary, they like what they hear:

“For Apple, the firm continues to knock the cover off the ball in terms of product innovation, sleek designs, attractive price points, and effective global deployment plans. These checks confirm Apple’s product cycle momentum continues to gain steam.”

Via Seeking Alpha and Silicon Alley Insider.

Are Apple’s lawyers getting ready to go on vacation? For the second time in as many days, the company has agreed to settle a lingering class action suit.

On Thursday, it was a pair of complaints out of Canada that 1st, 2nd and 3rd generation iPods were delivering something like three hours of music, not eight hours as advertised. Although one case was granted class action status and the other wasn’t, Apple (AAPL) agreed to settle both, according to the Montreal Gazette, offering $44 store credit to any Canadian who purchased one of the affected iPods before June 24, 2004. As many as 80,000 could be eligible. Hearings are set for May 26 in Montreal and June 20 in Toronto.

Then on Friday, according to the LA Times, Apple agreed to pay some 2.3 million Mac owners refunds of $25 to $79 to resolve claims that some of its power supplies were prone to fray and spark and self-destruct. Customers who bought replacement adaptors for PowerBooks and iBooks could be eligible for the refunds, according to documents filed in federal court in San Jose. A final court hearing is scheduled for Sept. 8.

Still pending, notes the Gazette, is the case filed against Apple Canada last fall by law student David Bitton who was surprised to discover that his 8GB iPod Nano held only 7.45GB. According to his lawyer, Bitton is asking for the full $220 purchase price, but will settle for 7.5%, plus court costs.

With Apple’s second-quarter earnings due Wednesday, some of the two dozen analysts who follow the stock have dusted off their spreadsheets, taken a fresh look at their models, and come to some last-minute conclusions.

The trend, starting with MacBook sales, is mostly bullish for Apple (AAPL); the four analysts we know of who have published new reports in the past 24 hours have pushed their Macintosh sales estimates up 100,000 to 300,000 above the Street consensus of 2.0 million. Their estimates of iPod sales, by contrast, fall below the 10.7 million consensus target. Their iPhone numbers are all over the lot, ranging from 1.5 to 2 million. For why this may be so, see Apple Q2 earnings: What to watch.

The exception to this bullish sentiment is Shaw Wu of American Technology Research. A long-time Apple supporter, he issued a turnabout report on Tuesday in which he downgraded the stock from Buy to Neutral, warning clients that Apple’s shares are near his target of 175, with only 4% appreciation ahead of it and a 15% to 20% downside risk. “We continue to be upbeat on the potential for a strong 2H product roll-out,” he writes. “However, we are concerned there could be a vacuum before then. Our supply chain checks indicate 3G iPhones will not likely ship in volume until July and new Macs until the Sept. quarter, likely putting stress on the June quarter.”

Below: our working spreadsheet of the latest estimates (e-mail subscribers click here). If you’re an analyst and want your numbers added to the list, you can e-mail me here.

Looking for analyts’ target prices? Mike from Helsinki early Tuesday posted a summary on TMO’s Apple Finance Board. Here’s his list, edited slightly for clarity:

Daedalus Capital: $300 by the end of this year, $600 during next year
Piper Jaffray: $250
Needham: $235
Friedman, Billings, Ramsey: $225
Lehman Bros.: $195
CitiBank: $212
RBC Capital:$190
Merrill Lynch: $180
Morgan Stanley: $175
Goldman Sachs $185
Caris & Co.: $170

Downgrade
Morgan Keegan: $133

[Update: Reader Terry Gregory points out that he maintains a complete list of brokerage targets for Apple, color coded for upgrades and downgrades, at AAPLinvestors.net. Click here.]

Apple is set to release its second-quarter earnings on Wednesday, and by coincidence its shares closed on Friday at just over $161 — almost exactly where they stood three months earlier, before Apple’s first-quarter earnings report.

Although the company in January posted the best earnings in its 32-year history, the Q1 report is remembered by investors as a disaster. In the weeks that followed, Apple (AAPL) shares fell more than 40 points — from above $160 to below $120 — knocking $36.5 billion off the company’s market capitalization. Recession fears were a big factor in what turned out to be a three-month bungee jump, but what really spooked the market was Apple’s Q2 earnings guidance: 94 cents per share, nearly 15% below the Street’s average estimate of $1.09. [Reader "Mick" points out that hedge funds dumping Apple to prop up their shaky financial positions played a major role in the sell-off. He notes that institutions held 71% of Apple's shares before the plunge and 68% after.]

So there are two things to watch for on Wednesday: 1) Apple’s sales figures for Q2, which should be stellar, and 2) what kind of guidance it gives for Q3, which is anybody’s guess.

All signs point to an excellent second quarter for Apple. The consensus of analysts surveyed Monday was looking for the company to earn $1.07 a share on $6.95 billion in sales, versus the company’s guidance of $0.94 on $6.8 billion

Strong sales of MacBooks led the quarter. IDC last week reported that, although growth in overall PC sales in the United States slowed last quarter to just 3%, Apple’s computer shipments were up 25.1%. Gartner, using slightly different methodology, reported Mac sales up 32.5%.

If Apple’s worldwide performance is anything like its domestic record, the company should easily beat the Street’s consensus of 1.95 million Macs sold in the quarter. Piper Jaffray’s Gene Munster is looking for Mac sales of 2-2.1 million; JP Morgan’s Mark Moskowitz expects them to come in even higher, at 2.11 million. Either number would represent a near doubling of sales in just two years, as Ars Technica’s handy bar graph shows.

The iPod picture is not quite as rosy. There is sure to be sharp seasonal falloff from the Christmas quarter, when Apple shipped 22.1 million units. JP Morgan’s Moskowitz estimates that Apple sold 9.68 million iPods in Q2; Piper Jaffray’s Munster is calling for somewhere between 10 to 10.5 million, reflecting a sales spurt late in the quarter sparked by a sharp price cut on the low-end iPod shuffle. According to Munster, the Street has already decided that the iPod’s days of growth are behind it, and that the consensus is looking for sales of just under 53 million iPods in 2008 — essentially unchanged from 2007. Munster’s more optimistic; he believes the iPod will evolve over the next 12 months from a stand-alone music player into a mobile Internet device that fits in your pocket, and he’s looking for iPod sales to grow 10% year over year.

iPhone sales are harder to predict, given the spot shortages in the United States, excess inventory in Europe, and a chaotic black market in jailbroken iPhones in Asia and the developing world. Analysts’ estimates are all over the lot. Moskowitz and Munster (to pick on those two one more time) differ by half a million units. Moskowitz expects Apple to report sales of 1.5 million iPhones; Munster is looking for 1.6 to 2 million. Charles Jade at Ars Technica’s Infinite Loop speculates that the release date of the 3G iPhone may hinge on what the actual number turns out to be. He writes:

With a prediction of 10 million iPhones sold in CY 2008 … Apple must sell, on average, 2.5 million iPhones per quarter. … If the iPhone sold less than 2 million units this quarter, expect a 3G iPhone sooner rather than later. Conversely, if the current shortages are a result of insatiable lust for the greatest phone ever made, expect Apple to milk that cow for all it’s worth before introducing a new model. (link)

When it comes to pricing Apple’s shares, however, Wall Street cares less about the past than the future. The guidance Apple gave last October hinting at a blowout Christmas surprised analysts and help drive the stock to a record $200 a share in December. Although Apple beat everybody’s expectations for the quarter, by the time the first quarter results came out, traders were focused on Q2. And when Apple shocked analysts in January with surprisingly pessimistic guidance, it triggered a 40 point fall.

Investors, some of whom lost millions in the debacle, were furious, and Apple was besieged by angry threats and e-mails. (”Straight out, bald face, criminal lying,” was how one described Apple’s Q2 guidance). Few expect the company to respond such complaints by sweetening its numbers; if anything, it is more likely to offer no guidance at all, especially for a quarter that is so hard to call. Although investors can look forward to a new iPhone and software developers kit in June, back-to-school sales in late summer, and Christmas sales before the end of the year, none of those expectations will show up in Q3 earnings.

If Apple does offers Q3 numbers, they are sure to be, as always, conservative. Apple, more than most companies, likes to make only promises it knows it can keep. But despite recent complaints, the fact is that its results do tend to track its guidance. The spreadsheet at left, produced by a member of TMO’s Apple Finance Board who calls himself “awcabot,” shows guidance and results quarter by quarter since 2002. Past performance is no guarantee, but over that time, revenues have exceeded guidance fairly dependably by an average of 5.7% and earnings by an average of 43.8%.

Take all this for what it’s worth. Apple is a volatile stock, and it’s especially volatile before and after earnings reports. We may not be in for another bungee jump, but for the next few days it could be a bumpy ride.

MacRumors has issued an update of its immensely useful Buyer’s Guide — a consumer-oriented cheat sheet that tracks the update cycle of Apple’s product line and offers informed opinions about whether you should go ahead buy that MacBook Pro you’ve been lusting after or wait for the next model. As MacRumors put it:

Apple updates their products in a very consistent manner. A Mac comes out at a certain price with certain features. The price and features of that particular Mac stay exactly the same throughout the lifespan of the product. So, if a customer buys on Day #1, they are getting the fastest/newest technology for the dollar. The problem, however, is that 8 months later, on the day prior to its refresh, that Mac costs the exact same money, but contains 8 month old technology. (link)

Although based on rumors and second-hand reports, the Guide is pretty dependable, especially since Apple (AAPL) switched to Intel chips. Intel (INTC) is quite open about its product plans, and Apple tends to switch to their newest processors in a fairly predictable timeframe. (Although as MacRumors notes, Intel’s switch to the Nehalem microarchitecture, due late this year, could stretch out some Apple product cycles.)

To see the full 2008-2009 Buyer’s Guide, click here. This is a summary of their recommendations:

• iPod classic: Buy only if you need it - Approaching the end of a cycle
• iPod touch: Neutral - Mid product cycle
• iPod nano: Buy only if you need it - Approaching the end of a cycle
• iPod shuffle: Buy - Product recently updated
• Mac mini: Don’t Buy - Updates soon
• Mac Pro: Neutral - Mid product cycle
• MacBook: Buy - Product recently updated
• MacBook Pro: Buy - Product recently updated
• iPhone: Buy only if you need it - Approaching the end of a cycle
• LCDs: Don’t Buy - Updates soon
• Xserve: Buy - Product recently updated

There’s lots more information in the full Buyer’s Guide, including historical release dates, days since update and links to recent news.

One caveat: you take a risk when you buy a computer on Day #1, as MacRumors suggests. You might want to monitor Apple’s discussion boards for few weeks to see what problems emerge. Let the company and the users who like to live on the bleeding edge work out the kinks before you buy.

Without budging from his “neutral” rating on Apple, JP Morgan analyst Mark Moskowitz issued a cautiously optimistic report on the company Thursday based on stronger-than-expected MacBook sales in the quarter that ended in March.

Moskowitz is looking for Apple (AAPL) to report that it shipped 2.11 million Macs in the company’s second quarter (up from his earlier estimate of 1.97 million).

Computer sales usually fall after the Christmas quarter; instead, he expects Mac sales to rise a hair — 0.2 percent — quarter-to-quarter, which is why he is raising his estimates. Apple’s increased sales come against a backdrop of unit sales falling 9 percent sequentially in the broader PC market, according to Moskowitz.

But the analyst sees “soft patches” in the rest of Apple’s businesses. In particular, he has trimmed his quarterly iPhone and iPod sales estimates, respectively, to 1.5 million and 9.68 million (down from 1.62 million and 10.1 million). “Seasonality is having an impact,” he writes. “Also, there could be some slowing in the iPhone ahead of the 3G launch.”

The bigger story, he says, is the timing of the 3G iPhone launch: “As long as there is nothing to suggest that a summer launch of the 3G phone is not a possibility, we would expect investors to look past any near-term disappointment in iPhones.”

Bottom line: He is raising his second-quarter estimates. Revenue: $6.76 billion. Earnings per share: $1.09. The Street is looking for $6.95 billion and $1.06, respectively.

Apple will report its quarterly earnings on April 23.

Who are these kids?

According to a Piper Jaffray survey of high school students released on Tuesday, 6 percent already own an iPhone and 9 percent expect to buy one in the next six months. That’s twice as many teens as owned iPhones in Fall ‘07, three months after the device was first released, when 3 percent had already bought one and 9 percent planned to.

Overall, Apple (AAPL) did well in the survey, which sampled 389 U.S. teenagers and showed the company’s lead rising in this key demographic.

iPod market share among the group was a record 86 percent, up from 82 percent last fall. And among the 39 percent who legally purchase music online, 81 percent said they used iTunes. That’s actually down some from the 89 percent who used iTunes a year earlier, but it’s not too shabby considering that a majority of the teenagers in the survey download their music from P2P services rather than paying for it legally.

Piper Jaffray analyst Gene Munster, the lead author of the report, surmises that Apple’s share of the legal download market may be falling among teens despite their strong preference for iPods partly because other online music stores are selling DRM-free music that is compatible with the iPod. We assume he’s talking about Amazon.

In any event, the survey shows that despite slowing sales for, say, fashion and footware, U.S. teenagers — or at least 6 percent of these 389 teens — still have money to spend at the Apple Store.

What is Steve Jobs waiting for?

It’s already April, and Apple has yet to start making large-scale purchase orders for NAND flash memory for 2008, according to a report issued Monday by iSuppli Corp. By this time last year, Apple had already ordered huge quantities of the stuff.

Apple (AAPL) looms large in the NAND flash market. According to iSuppli, it is the world’s third-largest OEM buyer of NAND flash, which it uses in iPods, iPhones and solid state disk drives for the MacBook Air.

Based on the lack of new large-scale orders — and on a February iSuppli report that Apple had “slashed” its expected 2008 flash growth forecast — iSuppli cut its own forecast of revenue growth for NAND flash memory this year by about two-thirds on Monday. iSuppli had previously forecast NAND revenue to rise 27 percent to $17.9 billion. It now expects revenue reach $15.2 billion in 2008, up only 9 percent from 2007’s $13.9 billion.

iSuppli had earlier predicted that Apple’s spending on memory would jump 32% this year to $1.6 billion. The firm now projects the company’s spending will increase only 12% to $1.4 billion in 2008, up from $1.2 billion last year.

iSuppli’s February report of “slashed” orders had surprised Apple watchers and didn’t help its share price, which had dropped 60 points from its December high of over $200 per share.

But the market seems to have shaken off iSuppli’s latest report, perhaps because demand for Apple’s products is so high. Apple can’t make iPhones fast enough to supply demand in the U.S. (see here) and interest in the next-generation 3G iPhones seems to grow every week. Meanwhile, Apple’s MacBooks are moving briskly and even iPods sales, which had slacked off, have picked up in the wake of the shuffle’s February price cut.

If Steve Jobs plans to sell 10 million iPhones in 2008, let’s hope he’s got the flash to put in them.