Posts At Eventide FQ1 AAPL Estimates

Posts At Eventide AAPL FQ1 Estimates

As an independent analyst and moderator of the Apple Finance Board I enjoy the opportunity to prepare estimates of Apple's anticipated performance on a quarterly basis.

My estimates rely heavily on Apple's recent quarterly results and I actively track trends that emerge over the most recent eight-quarter periods. For more information on the quarterly data I compile and the results I track, please see the Posts At Eventide Resource Guide for Independent AAPL Analysts. 

FQ1 Revenue and Earnings Estimates

For the December quarter my models forecast revenue of $26.425 billion and earnings per share of $6.27. This represents anticipated revenue growth of 68% over the prior-year period and eps growth of 70.8%.

I expect eps growth to slightly exceed revenue growth in the quarter due to lower tax rates and a drop in operating expenses relative to revenue. For a comparison of the rates of growth in Apple's revenue and operating expenses, please see my recent blog post titled Apple: Revenue Growth vs. Growth in Operating Expenses. The drop in tax rates and the drop in operating expenses relative to revenue will mitigate the impact of lower gross margins in the quarter versus the prior-year period. 

Apple has become more aggressive on product pricing relative to manufacturing costs. It's my view the moderation in gross margins seen in FY2010 and expected in the December quarter is intended to gain market share through higher unit sales and promote growth in post-purchase revenue from the sales of apps and digital content. The more units sold, the greater the growth in post-purchase revenue. 

Apple's Dynamic Revenue Mix

In late October I published blog post titled Apple's FY2010: A Retrospective. In that post I illustrated the contributions of each of Apple's revenue segments to the company's overall results. In the December quarter and throughout FY2011 the Apple iPad will continue to dramatically change the percentage of revenue contributions from each of Apple's major product lines. I estimate in the December quarter the Apple iPad will represent about 17% of Apple's reported revenue and represent almost 42% of the quarter's estimated growth in revenue. 

Posts At Eventide AAPL FQ1 Estimates

	Revenue Segment	Units FQ1 '10	Units FQ1 ’09	Unit Growth	FQ1 Revenue
	Macintosh	4,350,000	3,362,000	29.4%	5,569,910,867
	iPhone	16,750,000	8,737,000	91.7%	10,558,002,396
	iPod	18,875,000	20,970,000	-10.0%	3,114,939,693
	iPad	6,750,000	N/A	100%	4,487,150,229
	Peripherals				525,000,000
	Software, Services				695,000,000
	Other Music				1,475,000,000
	Revenue Total				26,425,003,185
	Cost of Sales	62%			-16,383,501,975
	Gross Margin	38%			10,041,501,210
	Operating Expenses	9.1%			-2,405,000,000
	Operating Income	28.9%			7,636,501,210
	Other Income				65,000,000
	Income Before Taxes				7,701,501,210
	Provision For Taxes	24%			-1,848,360,290
	Net Income	22.2%			5,853,140,920
	Earnings Per Share	933,005,000	Shares		6.27

December Quarter Unit Sales

My FQ1 estimates include the following unit sales estimates for Apple's hardware device product lines:

Mac Unit Sales

For the December quarter I estimate Mac unit sales will have grown a bit over 29%, inline with the average 31% rate of growth in FY2010 and slightly above the 27% unit sales growth experienced in the September quarter. I expect the refreshed MacBook Air to have had a positive impact on Mac unit sales during the holiday quarter. Mac unit sales growth will outpace the PC industry's growth in the December period. 

iPhone Unit Sales

During FY2010 iPhone unit sales grew on average 91%. I expect iPhone units sales growth in the December quarter of roughly 91.4%, impacted slightly by an expansion of channel supply ahead of the March quarter.

iPod Unit Sales

The Apple iPod product line is in a phase of negative unit sales growth. In FY2010 iPod unit sales declined about 8.5%. However, the increasing influence of the Apple iPod touch led to a 1.4% gain in revenue for the line. Nonetheless, in FY2011 I expect the unit sales decline to continue. The emergence of the Apple iPad and the popularity of the Apple iPhone will impact iPod unit sales. 

Conclusion

Due in part to the release of the Apple iPad, Apple will achieve revenue growth exceeding 60% in each quarter of the current fiscal year and I expect revenue growth of about 68% in the December quarter. In the December quarter the iPad's influence may be more pronounced due to the absence of iPad and iPad-related revenue activity in the prior-year period. Although gross margins will be lower this quarter than the December quarter one year ago, the impact of lower tax rates and lower operating expenses relative to revenue will mitigate the impact of lower gross margins. 

I will be updating my 12-month AAPL price target and price forecasts this week.

Robert Paul Leitao