In Apple's third fiscal quarter ended in June, the company reported record revenue of $28.571 billion and record earnings per share (eps) of $7.79. Fueling the record eps performance was the record high 25.5% of each revenue dollar that flowed to the net income line.
On July 24th I published an article titled Apple's Net Income Relative To Revenue Continues To Rise. In that article I reviewed the company's net income to revenue performance over the most recent eleven fiscal quarters. Today I'm continuing my analysis of Apple's quarterly results with a review of the company's operating expenses (OpEx) and the declining percentage of revenue consumed by its two components: Selling General and Administrative (GS&A) expenses and Research & Development (R&D) expenses.
The graph below illustrates the differences in the rates of growth in revenue and operating expenses on a quarterly basis from FQ1 2010 that ended in December 2009 through FQ3 2011 that ended in June of this year. The difference in the rates of growth between revenue and operating expenses is unmistakable and the resulting benefit to net income and earnings per share is remarkable.
Operating Expenses As A Percent of Revenue
Since the beginning of FY 2009, the percentage of revenue consumed by operating expenses has declined from a high of 14.35% in FQ2 2009 to a low of 8.90% of revenue in the recent June quarter (FQ3 2011). As revenue has scaled significantly higher over the most recent eleven fiscal quarters, the falling percentage of revenue consumed by operating expenses is now delivering literally billions of additional dollars to Apple's pre-tax income line on a quarterly basis. The drop in operating expenses as a percentage of revenue can have a bigger impact on Apple's net income and earnings per share than variations in each fiscal quarter's gross margins.
The graph below illustrates the dramatic drop in the percentage of revenue consumed by operating expenses as revenue has risen significantly over this eleven-quarter period.