Saturday, November 27, 2010

Preliminary AAPL FQ1 Estimates (Updated 11/27/10)

On November 13th I published my preliminary AAPL FQ1 estimates. Please see this original post for a comprehensive overview of my estimates for each of Apple's major revenue segments. 
In this post I'm covering the updates to my preliminary mid-November estimates. As an independent analyst and moderator of the Apple Finance Board I'm posting estimates and my updates as a catalyst for discussion of anticipated December quarter results. These estimates are subject to change and most likely will be revised in the coming weeks as we approach the end of the quarter. These updates are being published with roughly one month remaining in the three-month fiscal period. 
FQ1 Revenue and Earnings Estimates
For the December quarter my updated models forecast revenue of $26.511 billion and earnings per share of $6.00. This represents an expected 69% jump in revenue and a 63.5% rise in earnings per share.
The pace of eps growth trails revenue growth due to the estimated 37.5% gross margin this December quarter versus the 40.9% gross margin in the prior-year period. This drop in the gross margin ratio has a material impact on the relationship between revenue and earnings growth. The eps performance in the December quarter includes a benefit from a drop in effective tax rates from the December quarter one year ago.
Apple has become more aggressive on product pricing relative to build costs. It's my view the moderation in gross margins is intended to promote growth in after-purchase revenue from the sales of apps and content. The more units sold the more future revenue generated from units sold. 

December Quarter Unit Sales
My updated FQ1 estimates include the following unit sales estimates for Apple hardware device product lines:
Mac Units:                 4.375 million
iPhone Units:         17.000 million
iPod Units:             18.875 million
iPad Units:               6.250 million
Mac Unit Sales
I currently forecast a 30% gain in Mac unit shipments versus the prior-year period. During fiscal year 2010 Mac unit sales grew on average 31%. In the recent September quarter Mac unit sales grew 27%. I expect a slight acceleration in the pace of Mac unit sales growth from the September quarter due to the refresh of the MacBook Air and the line's $999 introductory price. I expect the Mac's unit sales growth to represent 50% or more of the unit sales growth in the domestic PC market. 
iPod Unit Sales
The Apple iPod product line is in a phase of negative unit sales growth. I expect this trend to continue. However, the Apple iPod touch should continue to show unit sales gains while single-use or specific-use digital music players lose popularity in the global marketplace. For the December quarter I estimate a 10% unit sales decline. 
Preliminary Conclusions (Updated)
Due in large part to the emergence of the iPad, Apple will achieve revenue growth exceeding 60% in each quarter of the current fiscal year. In the December quarter the iPad's influence on the company's revenue and earnings performance will be even more pronounced due to the absence of iPad revenue activity in the prior-year period. I currently estimate revenue growth of 69%. My updated revenue estimate for the December quarter is north of $26.5 billion. I don't take this level of revenue activity lightly and my forecasting model remains conservatively biased. 
These estimates will undergo additional revisions over the remaining weeks of the December quarter. I'm posting preliminary and updated numbers as a catalyst for conversation and debate on Apple's expected December quarter revenue and earnings performance. 
Robert Paul Leitao


  1. iPod may surprise to upside. Latest refresh of line created highly compelling products, for example, the wearable Nano and the Touch with Facetime and retina display. There is a replacement cycle going on where individuals are tossing their older generation iPods and replacing them with the new models. iPod numbers could easily surprise break 20 or even 21 million this quarter.

  2. Looks like your iPad number might be a little low based on the article below. It says, "iPad shipments in the fourth quarter could top 7 million, bringing total 2010 sales to 15 million, sources indicated." How much would the EPS go up with another 750,000 iPads?

  3. Basing it on your gross of $26.5 billion and 37.5% gross margins, I forecast that eps will be $6.43. Why?

    Opex will be 8.8% of gross revenue, 1.2% less than last Q. Your 37.5% gross margin, is .6 percent greater than last Q. The two together is 1.8% more margins to the bottom line before tax. At a tax rate of 25%, this should add 1.35 percent to the bottom line.

    I think though, that your gross margins are way off. Component costs have dropped and forex changes are a positive to income. On $26.5 billion, I bet they make $6.86 per share.

  4. Chase:

    I'll be updating my iPad unit number before the end of the month. I expect to increase the unit estimate based in part on 10,000 points of domestic purchase for the holiday season and no apparent shortages of unit supplies.

    An additional 750,000 units sold would obviously have a material impact on both revenue and earnings. Look for my updated numbers by the end of December. I'll be working hard on the estimates over the holiday week.


  5. Anonymous:

    I'm evaluating a gross margin ratio of 38% on my next set of revisions. An increase depends in large part on the strength of iPhone unit sales and the estimated impact of the new MacBook Air on Mac ASPs and resulting gross margins.

    I may reduce the tax rate a smudge based on reports of strong overseas product sales. On the issue of operating expenses, stock-based compensation will impact that outcome. Although that expense is somewhat of an illusory expense, it does impact the reported numbers.

    Watch for my revised estimates over the next couple of weeks. I appreciate the detailed feedback.