NOTE: In case you’d like to refer back to previous “Oppenheimer Code” AAPL earnings posts –
My Oppenheimer Code posts for the prior fiscal quarter (Q3 2013) are now collected in the Fundamentals Archive section. As a friendly reminder/disclaimer, this isn’t treatise-level or expert-level stuff, not even close. Just one person’s exceedingly humble attempt to get a bit more insight into Apple’s fundamentals. This isn’t “forest from the trees” – it’s even higher up in the iClouds. More expert AAPL fundamentals types need not read on.
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My key takeaways from the first time I gave OpEx a closer (but nowhere close to in-depth) look, which was about three months ago, were:
1) OpEx is increasing on a more or less linear trajectory.
2) Apple, as you’d expect of a well-managed top-tier company, was just going about its business and spending according to its own needs, building for the future (though this being OpEx, we’re talking “building” in terms of overhead, salaries/employee count, stock-based compensation, etc. rather than the property, plant and equipment of CapEx).
Now I’m still as confident as ever in that second part – Apple’s definitely got a practical side. As for that first part, OpEx seemed to be trending up in linear-ish fashion just before last quarter’s earnings announcement. Oppenheimer guided fiscal Q3 2013 OpEx to between $3.85-3.95B, meaning OpEx was almost certainly going to reach an all-time high (given that he usually guides OpEx with good accuracy).
But look at the OpEx chart once actual fiscal Q3 2013 OpEx is added in, along with the midpoint OpEx estimate for fiscal Q4 2013 (between $3.9-3.95B).
Not quite so linear anymore, is it? Yes, Oppenheimer actually guided OpEx at least $250M too high in fiscal Q3 2013 (meaning that the OpEx record of $3.85B from fiscal Q1 2013 remains unbroken a bit longer), but this emerging “new perspective” wouldn’t change even if Q3 OpEx was closer to $3.95B, especially if Q4 OpEx actual is on the lower side.
Anyway, I’m now starting to seriously wonder if Apple’s OpEx trajectory more closely resembles stair steps than an upward slope.
What does it mean, exactly? Heck if I know! What’s the significance? Your guess is as good as mine!
But since it’s a lot less fun if a tabloid entertainment AAPL blog doesn’t venture into the realm of opinion here and there, I do have a very general tinfoil theory (and prediction). To lay the (very shaky) foundation, it’s starting to look like Apple is planning OpEx on a per-fiscal-year basis. The potential trend for this year is particularly striking. Because even if Apple reports OpEx at the top end of guidance for fiscal Q4 ($3.95B), the maximum differential of quarterly OpEx for the 2013 fiscal year would be the lowest it’s been this chart – $159M! In contrast, the max OpEx differential for fiscal 2012 was $277M, and for fiscal 2011, $326M.
That’s right – for the past three years, as Apple has been growing revenues from $108B to $156B to somewhere around $170B this fiscal year, mid-fiscal-year variances in OpEx have been consistently decreasing in absolute terms. Not only that, this fiscal year has seen a huge range in quarterly revenues – from $54.5B in Q1 to a probable low of $35.5B set in Q3.
Now, this is only my tinfoil theory, and successive quarters could easily make it look utterly silly. And I know that 12 quarters of data make for a very small data set. But with OpEx looking so consistent throughout fiscal 2013 despite higher revenues and quarterly revenue variances than 2011 or 2012, one can’t help but wonder. How does Apple do it? Only Oppenheimer, Maestri and company know.
I’ll conclude with my tinfoil theory and prediction.
1) There’s some intriguing, unknown strategic purpose behind Apple’s leveling out of quarterly OpEx each fiscal year.
2) Whatever Apple’s fiscal Q1 2014 looks like, quarterly OpEx will remain relatively consistent throughout the fiscal year.
I guess we’ll be able to get more “definitive” answers when fiscal Q4 2014 guidance is released. 😀
Postscript: Why didn’t I mention OpEx as a percentage of revenue (which will again be >10%, it seems)? Well, if my hunch is semi-correct, “it won’t really matter”. It’ll frustratingly reduce data points even further, but the more relevant compare would then be OpEx as percentage of annual revenue. I’m sure Apple doesn’t mind the reduced ability to gain any competitive insight from their financials one bit.