Q3 Forecast - Expect Reduced GM FC?

  • Posted: 02 March 2011 03:27 PM

    Hi folks

    Well I for one think the iPad 2 looks great, as does Mr Jobs, which I have say I’m even more pleased about.  But to have maintained those price points I think overall GM will be taking another hit, considering iPad will make a much greater share of Q3 revenue this year.  And with current (ridiculously critical) mentality of the markets that could mean a hit to AAPL. 

    Thoughts?

         
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    Posted: 02 March 2011 04:23 PM #1

    LongAAPLsince02 - 02 March 2011 07:27 PM

    Hi folks

    Well I for one think the iPad 2 looks great, as does Mr Jobs, which I have say I’m even more pleased about.  But to have maintained those price points I think overall GM will be taking another hit, considering iPad will make a much greater share of Q3 revenue this year.  And with current (ridiculously critical) mentality of the markets that could mean a hit to AAPL. 

    Thoughts?

    I wouldn’t be overly concerned.  I think the BOM will be pretty similar especially with the higher volumes.  Apple maintained price points while adding capability, but if we look at a YOY comparison, the price of DRAM historically has an average price decline of 32% and NAND has followed a similar path of around 30-40% so 16GB last year might cost $30 and now $18.  The A5 die size is probably about 70mm2 vs 53mm2 to fit the extra GPU/CPU(my guess).  Apple buys wafers so let say instead of 1200 dies per wafer we get 1000 per $5K wafer so $4.16 vs $5.00 the packaging cost are about the same and of course we have NRE for the processor design but that cost will be shared across a ton of units.  The LCD panel & Touch Screen cost probably decrease 20% YOY so we have BOM to add the camera modules front & rear and increase the RAM from 256MB to 512MB.

         
  • Posted: 03 March 2011 01:02 AM #2

    LongAAPLsince02 - 02 March 2011 07:27 PM

    Hi folks

    Well I for one think the iPad 2 looks great, as does Mr Jobs, which I have say I’m even more pleased about.  But to have maintained those price points I think overall GM will be taking another hit, considering iPad will make a much greater share of Q3 revenue this year.  And with current (ridiculously critical) mentality of the markets that could mean a hit to AAPL. 

    Thoughts?

    Actually, the iPad’s revenue share this quarter may be no greater than the December quarter’s 17.23%. In the December quarter iPhone revenue growth exceeded the total revenue generated by the Apple iPad. That will occur again this quarter. For FQ3 I don’t see the new iPad having a negative impact on GM for a number of reasons including economies of scale and and fat margins delivered by iPad accessories and services.

         
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    Posted: 03 March 2011 01:17 AM #3

    I happen to think some iPad margins will actually be richer and offset any GM-lowering effect the $499-or-so-level iPads might have.  I still remain highly skeptical that the 3G add-on adds anywhere near $50 to the BOM.  Apple didn’t change anything really as far as LCD or flash memory is concerned, either. 

    The smart money won’t care about “margin pressure.”  I’d rather Apple do as it’s doing, which is sacrifice a little margin here and there to get a hot new product out there as soon as possible, then relentlessly ride that cost curve down.  The economies of scale will be at an all-time high this year since iPad, iPhone and Apple TV will consume even more A5 SoCs, LCD panels, flash memory, RAM, etc. than ever before.

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    Posted: 03 March 2011 11:13 AM #4

    I happen to think some iPad margins will actually be richer and offset any GM-lowering effect the $499-or-so-level iPads might have.  I still remain highly skeptical that the 3G add-on adds anywhere near $50 to the BOM.  Apple didn?t change anything really as far as LCD or flash memory is concerned, either.

    I total agree on the cost of the 3G baseband section,  I’m interested to see if Apple went with the Qualcomm part for both GSM & CDMA or are they still using Intel Infineon for the GSM part.  This will set up a nice battle for slots in the iPhone 5.  The RF subsection consists of a Baseband a couple Power Amps Front end switch, Power Mgt, GPS Chip and Antenna (RF & GPS).  If we use Isuppli numbers from the Verizon Iphone we have 16.41(RF) + 6.50(Power Mgt) + 2.00(antenna) + $2(AGPS) + 6.00 (2% BOM 3g Royalties).  We have less then $40 of parts content for the 3G subsection.

         
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    Posted: 03 March 2011 11:26 AM #5

    The dual cameras would add something to the cost.  The thinner aluminum body will most likely require less Al than the previous model.

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    Posted: 03 March 2011 12:31 PM #6

    GM will definitely be higher than what was reported last quarter (38.5%). Note that GM guidance was raised by 250 basis points for this quarter. So there is ZERO chance of GM being lower this quarter compared to last quarter.

         
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    Posted: 03 March 2011 01:50 PM #7

    Sky high margins on iPad accessories will help.

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  • Posted: 03 March 2011 02:03 PM #8

    The collective has responded and all the arguments in favor of higher GM% are there.  That would make me in agreement with all that has been said.  I believe GM will come in at something higher than 40%, but I’m not forecasting anything higher just to insure I don’t over estimate earnings.  Better Apple exceed all of my estimates, than for me to make an unwise investment based on irrational exuberance.

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    Posted: 03 March 2011 02:28 PM #9

    Yes as said,  any margin reductions will be offset by the popularity of the smart covers.

         
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    Posted: 03 March 2011 03:27 PM #10

    I see the general GM picture hardware-wise being something like:

    Macs - same or slightly higher
    iPods - will raise GM slightly because of lower unit sales mix, presumably lower margins
    iPad - around the same margin, in any case little effect on margin mix, unless there’s insane sales beyond fiscal Q1’s, which no one is modeling at the moment AFAIK (yet)
    iPhone - will raise GMs significantly
    “Macro” - component prices should be “lower than expected” again as Apple’s purchasing power reaches increasingly ridiculous levels.

    I’ll probably still have a 40-40.5% GM number for conservatism, though.

    As for Smart Covers?  Could be high margin, but it’s a way better deal than a bumper I’d say.  I’m not necessarily calling it a good deal, but when Apple creates a product with such a high “wow” factor, people won’t even get too far past the “stand” and “microfiber cloth” features in their thought process before the credit cards get swiped.  They may even stop at “magnets.”  I know I’d buy one (in combination with a more protective case when out and about).

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    AFB Night Owl Team™
    Thanks, Steve.