FQ2 iPad Unit Sales (Revisited)

  • Posted: 19 March 2011 02:09 PM

    Following the release of the iPad 2 and indications original iPad units remain available, what should the market expect for iPad unit shipments in the March quarter?

    Apple entered the quarter with 4 to 6 weeks of channel inventory on the original iPad and iPad 2 units are in constrained supply.

         
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    Posted: 19 March 2011 02:54 PM #1

    We’ve never had an “iPad pause” or any “iPad seasonality” before this quarter so projections are nothing more than guesses.

    Some possibly comparable parameters:  Lately “iPhone pauses” have been minimal sequentially due to very high iPhone demand generally.  Seasonality is difficult to quantify because the sales curve is still pointed skyward with huge YOY growth, most recently 90%-ish.  There is no quantifiable “iPod pause” from quarter to quarter but rather a fairly predictable seasonality. 

    OTOH:  iPods are classically subject to an approx. doubling of units sales over all other quarters every holiday season.  Unknown if iPads, an ideal but much more expensive holiday gift, are subject to this kind of seasonality.  I’d say yes, to a fairly limited degree on account of price.

    One semi-feasible approach is to model iPad sales as tanking following fiscal Q1 in an iPod-esque manner (7.33 mil x 60% = about 4.4 million) which also accounts for any iPad sales pause.  Then “add” launch number effect (500,000 to be very conservative) and counterbalance with very high iPad popularity.  That gets to about 5 million as a fairly conservative low number to start from.

    iPad 1 clearance sales are not included in my home game numbers to keep numbers conservative.

    [ Edited: 19 March 2011 02:57 PM by Mav ]

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    Posted: 19 March 2011 03:09 PM #2

    fine rationale, Mav.  I was going to say 6 million.  With 5 million as a base, 6 million looks like a nice bonus. 

    iPod sales may be down to 8 million.

         
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    Posted: 19 March 2011 03:21 PM #3

    There are so many variables for the iPad estimates this Q, it’s anyones guess…...conservative or aggressive.

    -Did Apple have adequate iPad 2s going into the launch or was supply limited like some reports stated due to last         minute changes made.
    -How many iPad 2s is Apple able to produce daily…...and assuming the ramp up is in full force and increasing.
    -Did Apple have ample iPad 2s for online ordering or did they purposely have the majority of supply in retail stores.
    -Will the Japanese disaster impact parts short term and/or next Q as well.
    -What type of inventory levels will Apple have for the international launch…...which goes back to the ramp up again.
    -Although the US launch looked very strong, how many units were in the channel for consumption.
    -Will discounting the iPad 1 increase sales of excess inventory and boost sales.

    We know Apple production numbers and sales numbers are disclosed only when it benefits Apple, not their competition.  We know demand for the iPad 2 is through the roof…...continued lines one week after launch.  Once again, the analyst that nails their iPhone and iPad numbers, will be the closest in their EPS estimates.

    IF and do mean IF, the international launch is strong we hopefully will be close to 6 million.    Of course that’s my best guess.

    [ Edited: 19 March 2011 03:39 PM by afterglow ]

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  • Posted: 19 March 2011 03:34 PM #4

    I am still optimistically predicting 7.5 million units sold in the second quarter including discount items.  This in spite of Tim Cook’s comments last January which I view as diversionary vs. The early intro of the iPad 2.  Margins will be lower because of the fire sale but this will be offset by high profits on the new cover.

    Btw, I believe that this is a five week month but am not sure what the last day of the quarter is.  Anybody know for sure?

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  • Posted: 19 March 2011 03:43 PM #5

    I am surprised Apple launched at the end of the quarter, risking iPad 1 sales disruption and thus q2 earnings.  Certainly the March25 international launch doesn’t leave anyntime to make up sales in the quarter, and international sales of iPad1 surely stopped once iPad2 was officially announced.

    So this is very puzzling, especially since it would have been safer to announce in early April and allow a full quarter for transition.

    The only explanation I van think of

    - ipad1 sales were rapidly slowing down anyways as people were anticipating iPad2
    - Apple had enough supply of IPad2 on hand that they were confident to satisfynenoughnlaunch demand to make up iPad1 disruption, which means Ipad2 sales were extremely high, o er 1m units

    Thoughts?

         
  • Posted: 19 March 2011 03:45 PM #6

    westech - 19 March 2011 06:34 PM

    I am still optimistically predicting 7.5 million units sold in the second quarter including discount items.  This in spite of Tim Cook’s comments last January which I view as diversionary vs. The early intro of the iPad 2.  Margins will be lower because of the fire sale but this will be offset by high profits on the new cover.

    Btw, I believe that this is a five week month but am not sure what the last day of the quarter is.  Anybody know for sure?

    Apple’s fiscal quarters are 13 weeks in length with an adjustment in the first fiscal quarter every few years to compensate for the calendar anomaly. The quarter will most likely end on Saturday, March 26th.

         
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    Posted: 19 March 2011 03:55 PM #7

    DT, doesn’t that adjustment happen this year? I thought I remember Deagol saying something about this. grin

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    Posted: 19 March 2011 04:20 PM #8

    Did a quick look through Apple 10-Ks.

    As of this year, they said the 53-week fiscal year comes around approx. once every 6 years.

    The last 53-week fiscal year was in 2006 per the 2008 10-K.

    With respect to iPad 2 numbers, in the absence of data points about the launch it’s more prudent to model conservatively IMHO.  IHMO the Libya situation is nonmaterial to iPad sales but Japan could be another story.  Aside from potential production constraints,  Japan launch sales would probably have made some difference in the numbers although it’s theoretically possible that some if not all of the Japan-dedicated supply was reallocated to the other countries on account of the launch delay.

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  • Posted: 19 March 2011 05:20 PM #9

    mbeauch - 19 March 2011 06:55 PM

    DT, doesn’t that adjustment happen this year? I thought I remember Deagol saying something about this. grin

    I think we will see a one-week adjustment in FQ1 2012 (the coming December quarter) which will be extended about a week to compensate for “calendar creep” since the last adjustment. This will obviously impact FQ1 results to be released next January.

         
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    Posted: 19 March 2011 05:35 PM #10

    Eight full days of iPad 2 sales and the only comment from Apple has been:

    ?Demand for the next generation iPad 2 has been amazing,? Apple spokesperson Trudy Muller, told The Loop.

    Since Apple does not need to exaggerate, estimates in the 1 million range for the first week sound very plausible. Reduce iPad 1 sales for Jan. & Feb. to 1.5 million each month and 2.5 million for Mar. clearance sales. That brings the total to 6.5-7.0 million. Still a sequential decline, but with a slight chance of upside surprise.

    Questions about channel inventory. Would it be safe to assume that iPad 1 inventory will dwindle down to 0-2 weeks by the end of FQ2? If the international debut goes as planned for March 25th (24th in the U.S.), shipments will count towards FQ2, but will they count towards channel inventory if they sell out that first weekend? In other words, would it be possible to have near zero channel inventory going into FQ3?

         
  • Posted: 19 March 2011 07:17 PM #11

    Drew Bear - 19 March 2011 08:35 PM

    Eight full days of iPad 2 sales and the only comment from Apple has been:

    ?Demand for the next generation iPad 2 has been amazing,? Apple spokesperson Trudy Muller, told The Loop.

    Since Apple does not need to exaggerate, estimates in the 1 million range for the first week sound very plausible. Reduce iPad 1 sales for Jan. & Feb. to 1.5 million each month and 2.5 million for Mar. clearance sales. That brings the total to 6.5-7.0 million. Still a sequential decline, but with a slight chance of upside surprise.

    Questions about channel inventory. Would it be safe to assume that iPad 1 inventory will dwindle down to 0-2 weeks by the end of FQ2? If the international debut goes as planned for March 25th (24th in the U.S.), shipments will count towards FQ2, but will they count towards channel inventory if they sell out that first weekend? In other words, would it be possible to have near zero channel inventory going into FQ3?

    March “clearance sales” through 3rd party retailers may not necessarily be reported by Apple as new unit sales in the quarter. Sales are reported through 3rd party retailers when shipped, not when sold to consumers. It’s possible there could be higher sell-through in the quarter than Apple reports as unit sales.

    In other words, more iPads could be sold to consumers than Apple reports as units sold. Channel inventory reported as unit sales in FQ1 will not be counted again upon sell through to consumers.

     

    For the March quarter Apple is pretty much the exclusive seller of the iPad 2.

         
  • Posted: 20 March 2011 03:09 AM #12

    DawnTreader - 19 March 2011 05:09 PM

    Following the release of the iPad 2 and indications original iPad units remain available, what should the market expect for iPad unit shipments in the March quarter?

    Apple entered the quarter with 4 to 6 weeks of channel inventory on the original iPad and iPad 2 units are in constrained supply.

    I think the only real way to look at iPad unit sales is to start with Apple’s March quarter guidance.

    Firstly, Apple guided $4.90 for FQ2.  Apple guided $4.80 for the December quarter, then reported $6.43.  That’s a ratio of 1:1.34.  If we apply that ratio to March quarter guidance we get EPS of $6.56.  Yes, it is that simple when you have watched Apple guide, and report, like that for the past 6 years.

    I applied seasonality to Mac, iPod and iPhone sales (Verizon isn’t going to bump worldwide iPhone sales that much), then adjusted iPad sales to make up the difference in earnings.  With an iPad unit sales estimate of 7.7 million units I arrive at EPS of ~$6.25, well below that predicted by the guidance to actual ratio.

    It takes an increase in iPad unit sales (QoQ) of 25% (9.2 million units) to get an EPS of $6.57 (ratio predicts $6.58).  I have a hard time (emotionally) with a number that large, but think it possible.  I’m just not ready (again emotionally) to officially forecast a number like that, then put my money where my mouth is, and invest.

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  • Posted: 20 March 2011 03:11 AM #13

    DawnTreader - 19 March 2011 05:09 PM

    Following the release of the iPad 2 and indications original iPad units remain available, what should the market expect for iPad unit shipments in the March quarter?

    Apple entered the quarter with 4 to 6 weeks of channel inventory on the original iPad and iPad 2 units are in constrained supply.

    I think the only real way to look at iPad unit sales is to start with Apple’s March quarter guidance.

    Firstly, Apple guided $4.90 for FQ2.  Apple guided $4.80 for the December quarter, then reported $6.43.  That’s a ratio of 1:1.34.  If we apply that ratio to March quarter guidance we get EPS of $6.56.  Yes, it is that simple when you have watched Apple guide, and report, like that for the past 6 years.

    I applied seasonality to Mac, iPod and iPhone sales (Verizon isn’t going to bump worldwide iPhone sales that much), then adjusted iPad sales to make up the difference in earnings.  With an iPad unit sales estimate of 7.7 million units I arrive at EPS of ~$6.25, well below that predicted by the guidance to actual ratio.

    It takes an increase in iPad unit sales (QoQ) of 25% (9.2 million units) to get an EPS of $6.57 (ratio predicts $6.58).  I have a hard time (emotionally) with a number that large, but think it possible.  I’m just not ready (again emotionally) to officially forecast a number like that, then put my money where my mouth is, and invest.

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  • Posted: 20 March 2011 03:26 AM #14

    Drew Bear - 19 March 2011 08:35 PM

    Eight full days of iPad 2 sales and the only comment from Apple has been:

    ?Demand for the next generation iPad 2 has been amazing,? Apple spokesperson Trudy Muller, told The Loop.

    Questions about channel inventory. Would it be safe to assume that iPad 1 inventory will dwindle down to 0-2 weeks by the end of FQ2? If the international debut goes as planned for March 25th (24th in the U.S.), shipments will count towards FQ2, but will they count towards channel inventory if they sell out that first weekend? In other words, would it be possible to have near zero channel inventory going into FQ3?

    Channel inventory is going to drop, despite increasing international distribution.  Apple can’t fill the channel at this time.  All shipments are going straight to consumers.  This is evident from the lengthening lead times before orders are fulfilled (up to 6 weeks).

    FQ3 is going to be awesome.  Starting from a conservative March quarter base of 7.7 million units I’m currently modeling 9.2 million units for FQ3 (20% QoQ growth).

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  • Posted: 20 March 2011 03:27 AM #15

    Drew Bear - 19 March 2011 08:35 PM

    Eight full days of iPad 2 sales and the only comment from Apple has been:

    ?Demand for the next generation iPad 2 has been amazing,? Apple spokesperson Trudy Muller, told The Loop.

    Questions about channel inventory. Would it be safe to assume that iPad 1 inventory will dwindle down to 0-2 weeks by the end of FQ2? If the international debut goes as planned for March 25th (24th in the U.S.), shipments will count towards FQ2, but will they count towards channel inventory if they sell out that first weekend? In other words, would it be possible to have near zero channel inventory going into FQ3?

    Channel inventory is going to drop, despite increasing international distribution.  Apple can’t fill the channel at this time.  All shipments are going straight to consumers.  This is evident from the lengthening lead times before orders are fulfilled (up to 6 weeks).

    FQ3 is going to be awesome.  Starting from a conservative March quarter base of 7.7 million units I’m currently modeling 9.2 million units for FQ3 (20% QoQ growth).

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