The Oppenheimer Code, Fiscal Q2 2014, Part 3: Quick Update on OpEx, The Other Apple Plateau

Get it? The other plateau? Aside from Apple’s revenue growth?

I know, I’m not doing myself any favors with the bad puns…but it is my blog. 😉

As the title implies – and as prior posts on OpEx have posited – I’m not expecting any big surprises from OpEx for the remaining two quarters of fiscal 2014. If this is your first visit here ever or in a while (hi there!), what I mean is OpEx looks to remain fairly close to the current, $4.3-4.4B or so range (give or take a hundred million :P) unless Oppenheimer suddenly guides otherwise.

Why Apple’s OpEx has suddenly gone stair-step for each fiscal year, I still don’t know, but the profit implications remain the same. Lower revenue quarters in the fiscal year will look “artificially” worse given the “constant rate” OpEx Apple’s using.

Let’s update the Oppenheimer’s-OpEx-guidance-range-vs.-actual section from last quarter.

Q1 2013 (Fiscal calendar): Point guidance – $4.05B; actual $3.85B – guidance $200M / 5.2% higher than actual

Q2 2013: $3.8-3.9B; actual $3.791B – guidance was $9M / 0.2% higher than actual (based on lowest point in the range)

Q3 2013: $3.85-3.95B; actual $3.823B – guidance was $27M / 0.7% higher than actual (based on lowest point in the range)

Q4 2013: $3.9-3.95B; actual $3.841B – guidance was $59M / 1.5% higher than actual (based on lowest point in the range)

Q1 2014: $4.4-4.5B; actual $4.383B – guidance was $17M / 0.4% higher than actual (based on lowest point in the range)

Oppenheimer continues to be very precise, and yet also consistently conservative, when it comes to OpEx guidance. Of course, given that theory of planned OpEx allocation I have, precision may not be nearly as difficult as it might otherwise seem. 😉

Next up, the updated overall OpEx chart, along with my “estimate” that “should” be very close to actual given that prior recent history holds.

aapl-opex-q214-edition

 

If Oppenheimer’s pattern of guiding slightly above projected actual OpEx holds, there will be higher variance in OpEx range than last year. Then again, an $80M or so difference in OpEx for a quarter that may see revenues down $14B or so sequentially hardly represents a break from the apparent current trend.

So I think it’s still pretty safe to predict June quarter OpEx guidance to be within $4.3-4.5B.

Well, that was pretty easy, wasn’t it? The benefits of laying groundwork in prior quarters, I suppose. That leaves some time and writing space for OpEx components, and it’ll be a quick discussion.

In the recently-concluded January quarter, share-based compensation expense was $681M. Oppenheimer guided March quarter share-based compensation expense of $590M, a decrease of about $90M. That alone may explain most of the “relatively modest” sequential decline in OpEx.

Assuming the remaining components of OpEx stay in about the same proportion, I doubt Apple shareholders will be all that upset with a controlled, steady, year-on-year increase in good old R&D spending. Just as long as that continued R&D investment “shows up” in new products and/or new product categories in relatively short order.***

Next up, should I get there – revisiting Apple’s overall gross margin and regional operating margins.

*** Of course, it’s very likely that “today’s R&D dollars” are being spent towards research and development well beyond 2014.

 

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