The AAPL Tree Home Game Fiscal Q3 2013 Estimates (Corrected Version)

NOTE:  Apologies to the two or three of you who may have already looked at the older version.  I needed to re-evaluate my estimates due to incorrect prior-year iTunes/software and Accessories information that I was working from.

(Discussion welcome.)

Revenues:  $36.2B

EPS:  $7.67

GM – 36.5%

OpEx – $3.85B

Tax rate – 26% (same as Apple guidance)

Outstanding shares – 936M (assuming a net share reduction of about 11M)

iPhone – 29.5M sold @ $585 “ASP” (about 13% YOY unit growth)

iPad – 17.25M sold @ $430 ASP (about 1% YOY unit growth)

Mac – 4.1M sold @ $1310 ASP (2% YOY growth)

iPod – 5.25M sold @ $160 ASP (-22% YOY growth)

iTunes/software – $3.84B (assumes ~ 20% YOY growth rate)

Accessories – about $1.472B (assumes ~ 20% YOY growth rate)

Quick notes:  Revenues are about 2% over Oppenheimer top-end guidance and EPS is about 1.5% over implied top-end guidance.  Assumed gross margin to be in the midrange of Oppenheimer’s guidance and OpEx to be on the low end of Oppenheimer’s guidance.  ASP assumptions were fairly conservative, which also has the side “benefit” of increasing units given the same total revenue levels.

An upward adjustment to iPhone YOY unit growth was made on account of Verizon’s very solid 44% YOY increase in iPhone activations (from 2.7M to around 3.9M).  That’s a net increase of 1.2M activations YOY (not exactly “new iPhones sold”, but likely largely equivalent) from a single carrier, albeit a fairly large carrier in a competitive market.  Purchase commitment rumors aside, it’s not in an enlightened company’s best interest to flood the market if demand for the product simply isn’t there.  My guess is that non-Europe markets will be somewhat more like the Verizon example than in Europe, where consumers mostly seem to be retrenching.  Just a wild guess of course, and I understand the inherent problems with focusing too much on individual data points.

A very small YOY unit growth rate was assumed for iPad.  I accounted for iPads being later in their life cycles relative to previous generations (the current iPads launched in November, the older iPads launched in March or April), as well as the high unit number of the year-ago compare which may also have been boosted by channel fill.  I have a difficult time seeing how iPad would put in lackluster YOY growth; on the other hand, considering the potential for a minor iPhone growth surprise and seasonality being thrown off, along with an increase of iPads in the channel at the end of fiscal Q2 2013, I decided to adjust iPad downward.

I decided to go with a midrange GM projection considering the iTunes/software and Accessories categories’ impressive rate of growth, to the point where these categories are combining for almost 15% of Apple’s total revenue.

The lack of sell-through year-ago compares complicates the estimation process.

We’ll soon see if Mac will actually be able to continue growing year on year despite the overall trend in PCs.

I’m well aware that my revenue, EPS and iPhone assumptions could be overly optimistic.

6 thoughts on “The AAPL Tree Home Game Fiscal Q3 2013 Estimates (Corrected Version)

  1. Overall i think a responsible conservative estimate.

    Interesting call on the GM%.

    I’m of the thought that where apple has given a range in its guidance numbers (revenue, GM, op ex) that apple has used the lowest range as a realistic worst case scenario, and the highest range number as a probable minimum expected number. Meaning that if they achieve to their targets they will likely come in slowly above the high end of the range.

  2. Do note that for fiscal Q2 2013, Apple guided GM to 37.5%-38.5%, but put in an actual result of 37.5%. Given Apple’s history of GM guidance, that’s kind of unprecedented.

    As I noted in the post, I may well be too high on revenues and EPS. I hope not, but we’ll see.

  3. I think the almost 1% GM hit caused by the end of quarter Chinese warranty hit meant apple came in with “Worst case scenario” for GM% last quarter. Without that huge warranty charge they would have come in pretty close to the top of their range at 38.5%.

  4. Did Apple mention that in the conference call?

    I can’t recall, but they should have. Every percent counts, and if Apple only did that out of caution, then the non-GAAP number (and Apple’s fine with using non-GAAP for context) would’ve been important to note.

    Also, is it one-time or ongoing as a warranty policy shift?

    • Good read, thanks.

      Apparently GM would’ve been impacted by 0.4% or close to 1% depending on how you interpret the warranty accrual cost allocation. Hopefully this is more like a one time deal.

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