Part 2: Applying a little skepticism to Oppenheimer's conservatism.
TL;DR advance warning. But hey, sometimes you need to write more for deeper dives.
The original starting points (of course, yours will differ):
iPhone: 45.4M units @ $640 "ASP" (23%/33% est. normalized YOY growth)
iPad: 22.22M units @ $433 "ASP" (44% YOY growth/about 56% est. normalized YOY growth)
Mac: 5.21M units @ $1295 ASP (almost zero YOY growth/about 9% est. normalized YOY growth)
iPod: 13.857M units @ $160 (-10% YOY growth/-2% YOY est. normalized YOY growth)
36% GM
OpEx of $4.05B/about 7.8% of revs
26% tax rate
iPhone: ASP of $640? Considering the insane demand for iPhone 5, which Tim Cook seemed interestingly confident about meeting (as far as getting production to a level he was "happy" with)? Considering the Q4 2012 iPhone ASP of $636, Q3 2012 ASP of $624 and the Q1 2012 iPhone ASP of almost $660? First, considering ever increasing storage needs and all those Lightning cables and adapters that everyone will be buying (I bought me a spare cable too), I can easily see ASP being close to if not higher than Q1 2012's, if only for that one quarter. So let's move up ASP to $650.
Onto growth rate. 33% YOY on a normalized basis seems semi-reasonable...if you think Apple's iPhone growth is being pressured by the relentlessly successful Android army. Just a couple problems: That ignores Apple's continuous outperforming of the overall smartphone rate of growth year-to-year (granted, it's only Android and Apple smartphones growing much at all these days). That also severely discounts Apple's ability under Tim Cook to move product in big volumes the first full quarter of product availability. Now is iPhone destined for a return to the glory days of around 100% YOY growth? Of course not. The smartphone market is maturing and growth rates always taper off over time. But 33% normalized YOY growth just doesn't sound right for the iPhone so much of the world has been waiting for, particularly given Tim Cook's preferred approach to sales as seen last fiscal year.
So putting normalized iPhone sales in the year-ago quarter at about
34M, and applying a more realistic but still conservative YOY growth rate of
45% (hey, Android can supposedly enjoy a 90%+ YOY growth rate in CQ3 2012, can't Apple do half that for the all-important holiday quarter?), we get about
49.41M iPhones sold. I'm sure the 50M in a quarter sales landmark hasn't escaped Tim Cook's notice...but we're not so much trying to hit the mark as start to raise the bar from its hilariously low point of expectations.
iPad: ASP of $433?
Really? Well let's put it this way, if you're having a hard time seeing ASP get lower than that, I think we're good conservatism-wise. And honestly, I have a hard time seeing the iPad mini ASP being anywhere near $385 especially once you start adding accessories (Lightning cables/adapters, Smart Covers, AppleCare, possibly some third-party solutions Apple may have available in the online/retail stores before the end of the holiday quarter). You might respond "but iPad 3 ASP started at $499 and ASP is just $35 higher despite pricing going all the way up to $829 before you even add in AppleCare+". Fair point, but I'd reply, don't forget about iPad 2's continuing popularity and its $399 starting price. I'm also assuming an iPad mini-to-iPad sales ratio that I bet most people would call far too aggressive (at 2 iPad minis for every regular iPad or iPad sold). I'll leave iPad ASP alone for now.
That brings us to YOY growth, which I've started at 56% normalized YOY growth. We've had much, much higher iPad YOY growth rates in the past, but much of that is due to iPad's impressively fast start in the marketplace, and the early Apple sales curve for its more popular new iOS products (which tends to be pretty ridiculous the first year or so). There's also that last quarter to consider, which was about 44% growth at best if you think in terms of sellthrough vs. channel fill.
How to resolve the past history of iPad's blockbuster growth with the present, potentially sobering statistic of 44% best-case iPad sales growth in fiscal Q4, despite iPad still having been only in the middle of its lifecycle and sporting a fabulous Retina Display? At what point do predictions of impressive tablet market growth clash with a potential market growth/ceiling for devices that are somewhere in functionality between iPods (part of a, say, ~100Mish units/yr market) and PCs (a ~350Mish units/yr market)?
Well, how about we just leave the iPad number alone then? Sounds like a fairly conservative thing to do, and there is evidence of iPad seasonality though not as intense as for iPod. At the very least, a normalized YOY growth rate of about half the prior year's (111%) doesn't seem too far out there, considering Apple's ability to increase production capacity. And if you think that 22.22M iPads sold is too high a number to be thinking about right now, there's the low, low $433 ASP I've assumed to even things out.
Mac: Surprise, surprise, the refreshed MacBooks both enabled the slightest rise in YOY growth for fiscal Q4 2012 (despite a "stagnant" desktop line and initial supply constraints of the apparently-quite-populat 15" Retina MBP). Along come the new iMacs and a 13" Retina MBP to capture most all of the potential Mac demand in time for the holiday season, with ASP mix tempered only by Mac mini, and ASP will go from $1344 the prior quarter to...$1295? With iMac ASP destined to be well north of $1299 and 13" Retina MBPs starting at $1699, before all of those BTO options? I think matching the prior quarter's ASP of $1344 is quite reasonable, even accounting for the new Mac mini. We can leave the 9% YOY normalized growth alone.
iPod: Almost "not worth mentioning". Let's leave room for upside surprise and not touch the original numbers.
GM: 36% GM? 36%?!
There's sandbagging and then there's building artificial beaches. The last time Apple saw a GM of around 36% was...uh...Q4 2010?!
ycharts.com/companies/AAPL/gross_profit_marginWhat do I see? Refreshed Macs with plenty enough niceties to justify the price for Mac fans. And don't tell me that new Fusion Drive doesn't provide healthy margin, even though I'll probably get one with a new Mac.
Tons of iPhone 5s being sold, which are working their way down the cost curve
already, and destined to do so faster than any new-gen iPhone yet given the immense volumes. iPads that will be supply constrained based upon blended availability of less than 8 weeks in the quarter (and even then, not in all the countries they
could launch - such as *cough* China *cough* at the moment).
Net effect? Yes, top of the cost curve. On the other hand, more supply constraint of the particularly "low margin" models = less margin-dilutive effect. So while the year-ago GM of 44.68% isn't something we should be expecting, 36% is clearly much, much too low. Especially with $50B+ in revenue leverage.
I see GM quite reasonably
being 40%. That's a GM we haven't really seen since last year, on considerably lower revs. The one Apple product with the best chance to meaningfully increase revenue share YOY is iPhone 5. I think iPhone could easily expand revenue share from around 53% in Q1 2012 to close to 60% in Q1 2013.
But iPhone 5 is new, high-cost, one might say. To which I reply, OK, when was the last time iPhone was freshly redesigned and shipping in a holiday quarter? That would be the high-cost-structure, glass-and-steel-sandwich, Retina Display-debut iPhone 4. Which accounted for $10.5B of Apple's $26.74B in Q1 2011 revs. And despite all that and Apple's first year with less-off-the-shelf, A-series SoCs, Apple still managed a GM of 38.5%.
So...more than double Apple's revs, raise iPhone's revenue share from 39% to well over 50%, account for all of Apple's learning and process improvements and cost efficiencies with increasing leverage and Apple can't find another 150 basis points of margin under the couch? What, because of 18% more pixels in the iPhone 5's display?
Riiiiight. I don't see ForEx meaning all that much with huge international sales (and iPhone 5
is slated for a December release in China per Tim Cook).
Also, I'm thinking iPad will be growth-constrained to a considerable degree due to its late availability in the quarter, and despite the quality construction and all that Apple is underplaying the huge efficiencies in iPad mini it's enjoying from (1) similar build process to iPhone 5, (2) using "cheaper" 1024x768 screens (really just making bigger panels with iPhone 3GS resolution - yeah, like those cost a bunch to start), (3) still charging the $130 premium for LTE, (4) using the same flash capacities as it has since iPad's intro, (5) using cheaper A5 chips, etc. And it's not like iPad 4 will really cost all that much more than iPad 3 from an SoC swap, a new connection port, a FaceTime HD camera and a couple other tweaks.
One last thing - the GM beat for fiscal Q1 2012 was over 450 basis points (40% guided vs. 44.68% actual). So there's precedent for a major GM beat. And there's room for me to be wrong on GM but still get roughly the same EPS - if iPad can sell in much larger numbers than 22.2M or so, and/or at a considerably higher ASP than $433, fine by me!
OpEx: Oppenheimer has, IIRC, regularly guided OpEx pretty close to actual. He guided to OpEx of $3.5B for fiscal Q4 2012. Actual came in just a bit lower at $3.457B. So I'll keep the $4.05B OpEx figure.
Tax: 26% seems reasonable considering healthy enthusiasm for iPhone and iPad in the US.
Add all the adjustments together, and my baseline estimate is: Revs of $55.32B and $14.37 EPS. Normalizing for fiscal Q1 2012, that'd look something like 30% revs growth and 12% EPS growth. Hmm...