FQ2 iPad Unit Sales (Revisited)

  • Posted: 21 March 2011 01:55 PM #46

    iphoned - 21 March 2011 05:13 AM

    >> BECAUSE they had inventory to carry them during the changeover

    How did you arrive at this conclusion,please?

    Because TC said it.  He didn’t say that inventory was specifically for the transition, but 4-6 weeks is an awful lot to carry going into the historical slowest quarter of the year.

    Shutting down iPad1 production lines end of January, [setting up iPad2 lines/burning off iPad1 inventory] , then launching iPad2 seems a very reasonable timeline and use of excess iPad1 inventory.

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  • Posted: 21 March 2011 02:33 PM #47

    >> Shutting down iPad1 production lines end of January, [setting up iPad2 lines/burning off iPad1 inventory] , then launching iPad2 seems a very reasonable timeline and use of excess iPad1 inventory.

    This does not explain why they coul not have shifted the whole exercise by 4 weeks and try not to mess up the q2 sales.  My conclusion is that ipad1 q2 sales must have been tanking pos-holiday and with imminent-ipad2 rumors.

         
  • Posted: 21 March 2011 03:17 PM #48

    iphoned - 21 March 2011 05:33 PM

    >> Shutting down iPad1 production lines end of January, [setting up iPad2 lines/burning off iPad1 inventory] , then launching iPad2 seems a very reasonable timeline and use of excess iPad1 inventory.

    This does not explain why they coul not have shifted the whole exercise by 4 weeks and try not to mess up the q2 sales.  My conclusion is that ipad1 q2 sales must have been tanking pos-holiday and with imminent-ipad2 rumors.

    Please explain why Cook and Oppenheimer guided $4.90 for the March quarter, after having guided $4.80 for the December quarter (then reports $6.43).

    Focusing on what happened when ignores what Apple KNOWS and guided.

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    Posted: 21 March 2011 04:49 PM #49

    iphoned - 21 March 2011 05:33 PM

    This does not explain why they coul not have shifted the whole exercise by 4 weeks and try not to mess up the q2 sales.  My conclusion is that ipad1 q2 sales must have been tanking pos-holiday and with imminent-ipad2 rumors.

    So you’re saying that tanking iPad sales “forced” Apple to release the iPad 2 early? And that early release is now messing up FQ2 sales?

    1. Why do you think iPad sales were tanking?
    2. Why do you think FQ2 sales are messed up?

    No offense intended, but please avoid circular logic. e.g. “FQ2 sales are messed up because iPad sales were tanking” or “iPad sales must have been tanking because Apple is now messing up FQ2 sales.”

    Edit: I don’t mean to sound harsh. I’m just wondering if I missed some news report that pointed to poor iPad 1 or 2 sales.

    [ Edited: 21 March 2011 04:55 PM by Drew Bear ]      
  • Posted: 21 March 2011 04:50 PM #50

    Gregg Thurman - 21 March 2011 06:17 PM
    iphoned - 21 March 2011 05:33 PM

    >> Shutting down iPad1 production lines end of January, [setting up iPad2 lines/burning off iPad1 inventory] , then launching iPad2 seems a very reasonable timeline and use of excess iPad1 inventory.

    This does not explain why they coul not have shifted the whole exercise by 4 weeks and try not to mess up the q2 sales.  My conclusion is that ipad1 q2 sales must have been tanking pos-holiday and with imminent-ipad2 rumors.

    Please explain why Cook and Oppenheimer guided $4.90 for the March quarter, after having guided $4.80 for the December quarter (then reports $6.43).

    Focusing on what happened when ignores what Apple KNOWS and guided.

    I think Cook and Oppenheimer are estimating much higher iPhone sales than you. On the call, they guided higher yet they suggested that iPad sales would be down sequentially. iPod and Mac sales should go down sequentially as well. There is only one product line left, iPhone. They are obviously thinking iPhone sales are going to be way above your 16M estimate if all other main product lines are down, but revenue and earnings will be up.

    I’m guessing Q2 iPhone sales will be in the 18.7-19.1 range.

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  • Posted: 21 March 2011 04:51 PM #51

    DawnTreader - 21 March 2011 03:44 PM
    roni - 21 March 2011 03:27 PM

    I read a comment to a post, maybe on Horace’s site, that suggested the move from laptop/desktop computers to tablets would represent a shift similar to that from cassette tapes to CD’s during the 20th century.

    I am about 30% on the way to buying that.  A couple of years ago the Morgan Stanley Mobile Internet research report solidified my thinking on Apple as a mobile platform company.  The possibility that Apple is best positioned to benefit from the type of shift that the commenter was thinking of is a serious one, particularly when considering the wealth creation that would occur if half-true, even.

    Again, the iPad must be viewed as an extension of Apple’s iOS multi-product paradigm.

    I agree with that, and have been talking and writing about the iOS platform since the intro of the iPod Touch. Some more traditional telecom analysts raked me over the coals for that, but I assured them they would catch up with reality someday smile.

    It is also all right to look at each member of the platform in isolation.  The iPhone and iPod Touch will never be a computer replacement to the extent that the iPad will.

         
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    Posted: 21 March 2011 05:43 PM #52

    cdodge - 21 March 2011 07:50 PM
    Gregg Thurman - 21 March 2011 06:17 PM
    iphoned - 21 March 2011 05:33 PM

    >> Shutting down iPad1 production lines end of January, [setting up iPad2 lines/burning off iPad1 inventory] , then launching iPad2 seems a very reasonable timeline and use of excess iPad1 inventory.

    This does not explain why they coul not have shifted the whole exercise by 4 weeks and try not to mess up the q2 sales.  My conclusion is that ipad1 q2 sales must have been tanking pos-holiday and with imminent-ipad2 rumors.

    Please explain why Cook and Oppenheimer guided $4.90 for the March quarter, after having guided $4.80 for the December quarter (then reports $6.43).

    Focusing on what happened when ignores what Apple KNOWS and guided.

    I think Cook and Oppenheimer are estimating much higher iPhone sales than you. On the call, they guided higher yet they suggested that iPad sales would be down sequentially. iPod and Mac sales should go down sequentially as well. There is only one product line left, iPhone. They are obviously thinking iPhone sales are going to be way above your 16M estimate if all other main product lines are down, but revenue and earnings will be up.

    I’m guessing Q2 iPhone sales will be in the 18.7-19.1 range.

    This is a reasonable assumption. They would have known about the pending iphone on verizon release at the time of issuing guidance.

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  • Posted: 21 March 2011 11:40 PM #53

    cdodge - 21 March 2011 07:50 PM
    Gregg Thurman - 21 March 2011 06:17 PM

    Please explain why Cook and Oppenheimer guided $4.90 for the March quarter, after having guided $4.80 for the December quarter (then reports $6.43).

    Focusing on what happened when ignores what Apple KNOWS and guided.

    I think Cook and Oppenheimer are estimating much higher iPhone sales than you. On the call, they guided higher yet they suggested that iPad sales would be down sequentially. iPod and Mac sales should go down sequentially as well. There is only one product line left, iPhone. They are obviously thinking iPhone sales are going to be way above your 16M estimate if all other main product lines are down, but revenue and earnings will be up.

    I’m guessing Q2 iPhone sales will be in the 18.7-19.1 range.

    Perfect.  I disagree, but so what?

    Throughout this discussion it has become clearer and clearer that we are debating the wrong things.

    It doesn’t matter if Apple sells X iPhones, and Y iPads.  What does matter is Apple reporting earnings that makes Mr. Market happy.

    I think Apple has already told us that when they provided June quarter guidance ($4.90) which was 10? higher than December quarter guidance.

    For the past 7 years Apple has guided the March quarter lower than the December quarter, and guess what?  March quarter results were lower than the December quarter.

    Now Apple is guiding March quarter higher than December quarter, and guess what? I think March quarter results will be higher than December quarter results.  Does it matter all that much where the performance comes from?  To a degree.  If the growth comes from Mac, or iPod, sales Mr. Market isn’t going to like it as much as if the growth comes from iPhone, or iPad sales.  iPhones and iPad are new and sexy. 

    There’s another factor that could explain Apple’s higher guidance, and that is its effective tax rate.  Apple’s effective tax rate for the past 6 quarters has been: 32.10%, 29.00%, 23.67%, 24.18%, 21.11% and 24.60% (average 25.78%).  The average rate of the 6 quarters previous to the above was 29.97%.  A dip in the effective tax rate from 24.60% to 19.00% would generate EPS I think Apple is truly guiding.

    Precedence:  Fiscal Q4/2005 Apple’s effective tax rate dropped from 32.35% to 10.04%.  Apple along with many, many other US multi-nationals received a one time tax benefit for repatriating cash from foreign operations.

    I don’t put as much credence in the tax rate possibility as I do Apple just plain out performing the December quarter.  Therefore, I think iPhone sales will go flat (Verizon sales offsetting seasonal decline), and iPad sales will increase from 7,331,000 units to 9,200,000 units.  iPad is still in early growth phase (high), and is being accelerated by iPad2 intro, resulting in earnings of ~$6.57.

    Further, I think Apple is going to guide $7.63 for Q3/11.

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  • Posted: 22 March 2011 12:11 AM #54

    “There?s another factor that could explain Apple?s higher guidance, and that is its effective tax rate.  Apple?s effective tax rate for the past 6 quarters has been: 32.10%, 29.00%, 23.67%, 24.18%, 21.11% and 24.60% (average 25.78%).  The average rate of the 6 quarters previous to the above was 29.97%.  A dip in the effective tax rate from 24.60% to 19.00% would generate EPS I think Apple is truly guiding.

    Exactly,  Making More money and being taxed less, what I aspire to when I grow up… The huge sales increase in China—400%  YoY last quarter is being taxed at most likely Hong Kong corporate tax rates of 16.5%.  It’s an easy beat if your sales are increasing and your corporate taxes are decreasing .

         
  • Posted: 24 March 2011 01:22 AM #55

    irieblue - 22 March 2011 03:11 AM

    Exactly,  Making More money and being taxed less, what I aspire to when I grow up… The huge sales increase in China—400%  YoY last quarter is being taxed at most likely Hong Kong corporate tax rates of 16.5%.  It’s an easy beat if your sales are increasing and your corporate taxes are decreasing .

    Remember the Verizon sales are US-based revenue and the growth in iPhone revenue will exceed total revenue from iPad sales. The location of iPhone unit sales will influence tax rates in the quarter.

         
  • Posted: 24 March 2011 01:30 AM #56

    roni - 21 March 2011 07:51 PM
    DawnTreader - 21 March 2011 03:44 PM
    roni - 21 March 2011 03:27 PM

    I read a comment to a post, maybe on Horace’s site, that suggested the move from laptop/desktop computers to tablets would represent a shift similar to that from cassette tapes to CD’s during the 20th century.

    I am about 30% on the way to buying that.  A couple of years ago the Morgan Stanley Mobile Internet research report solidified my thinking on Apple as a mobile platform company.  The possibility that Apple is best positioned to benefit from the type of shift that the commenter was thinking of is a serious one, particularly when considering the wealth creation that would occur if half-true, even.

    Again, the iPad must be viewed as an extension of Apple’s iOS multi-product paradigm.

    I agree with that, and have been talking and writing about the iOS platform since the intro of the iPod Touch. Some more traditional telecom analysts raked me over the coals for that, but I assured them they would catch up with reality someday smile.

    It is also all right to look at each member of the platform in isolation.  The iPhone and iPod Touch will never be a computer replacement to the extent that the iPad will.

    roni, I think the iPhone and iPod touch have impacted PC sales. The reason being while most households will continue to have a conventional PC, there’s no longer a reason for two or three PCs in a home. The iPhone, iPod touch and, of course, the Apple iPad are reducing demand for conventional PCs.

         
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    Posted: 24 March 2011 03:17 AM #57

    It all comes down to Apple’s inevitable press release on iPad 2 sales for me.  Mere anecdotal evidence is just not enough to plug in the last 1/3 of the iPad equation, I need a data point, even if I have to extrapolate from it.  (Of course I’ll have to make a guess if the data point doesn’t come before April 1, but my point is it’s little more than guessing without some numbers to go on.) 

    Apple having massive supply issues re: iPad 2 shouldn’t surprise anyone.  Given the A5 rampup, how Apple iterates its designs, etc., this will ALWAYS happen until Apple suffers from waning demand.  Having all models of iPad 2 launch in the US and 25 countries within 2 weeks of each others doesn’t help.  I can see one possible exception where Apple could stockpile several million in initial supply:  the iPhone 5, if it’s more of an “iPhone 4GS” kind of update (though I can’t see 4G support just yet). 

    I want to know how many iPad 2s Apple was able to move to either retailers or customers’ hands in about 15 days’ time.  The rest I can run through half-reasonable assumptions.

    [ Edited: 24 March 2011 03:22 AM by Mav ]

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    Posted: 24 March 2011 12:07 PM #58

    Some models of iPad 1 are sold out at Apple Store.

    iPad wi-fi 16 gb :  no refurbs or new.
    iPad wi-fi 32 gb :  refurbs only. 

    Sources: 

    While Supplies Last http://wslrss.com/
    Apple Store Clearance http://store.apple.com/us/browse/home/specialdeals/clearance

    Note:  Refurbs may re-appear at any time, so I don’t really think that iPads 16 gb are gone yet.

    [ Edited: 24 March 2011 12:11 PM by Tetrachloride ]      
  • Posted: 24 March 2011 12:19 PM #59

    Gregg Thurman - 22 March 2011 02:40 AM

     

    Further, I think Apple is going to guide $7.63 for Q3/11.


    This would be mind-blowing. Please elaborate.

         
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    Posted: 24 March 2011 12:28 PM #60

    adamthompson3232 - 24 March 2011 05:59 AM

    I don’t think there is a way to get to such high gross margin (Apple guided to 38.5% which means 40%+ is a lock) if iPhone doesn’t increase in the revenue mix substantially vs. the prior quarter. If iPhone is flat, its share of revenue will barely increase sequentially so I don’t think your estimates for iPhone and iPad are possible.

    Turns out I’ve seem to split the difference between you guys (17.65m iPhones and 7.11m iPads ok it’s a tad closer to cdodge’s side than Gregg’s), but you do need to bake in a weak dollar tailwind to get to my 40.6% GM.

    Although I agree that 9m iPads is quite optimistic (I wouldn’t call it insane), if I plug that number and 16m iPhones in my sheet I still get 39.9% GM ($6.22 EPS). Yes iPads have much lower margins than iPhones, but overall GM should get a hefty boost from FX. Taking the other extreme and plugging in 6m iPads and 19m iPhones yields 41.2% GM ($6.48 EPS), a bit high IMO (still not insane).

    Funny how using Gregg’s argument for 9m iPads (his unit estimate in order to achieve $6.57 EPS as suggested by guidance) actually yields an EPS closer to what he himself admits to being more comfortable with ($6.27), and instead it’s a higher mix of iPhones what’s required to get closer to the EPS he’s trying to reach. This is most likely a result of extrapolating from sequential unit changes (unit mix) directly into overall sequential EPS changes (assisted by guidance ratios). Many factors other than product unit mix do have an effect in sequential changes to overall GM, revenue, and EPS (the stuff we get guidance for), like changes in individual product lines’ ASP and GM (many sub-variables in this including geographic mix, commodity costs, FX, etc.), as well as overall operational expenses, taxes (the only other one Gregg thought about), and even share dilution.

    The guidance ratio methodology, although effective in roughly gauging what Apple may be thinking internally, shouldn’t be applied too simplistically and then stick to those ratios no matter what. Apple certainly has more info than anyone else, but they still do not know the future EPS down to a few cents (their Time Machine is just a backup solution not the real deal). I would even argue that we may in fact have a more realistic look at the quarter right now than they themselves had 3 months earlier. It’d be quite a feat for them to “know” the results within 5%, 3 months in advance. If you accept they may not be able to do any better than this, then simple guidance analysis gets you to a wide range of $6 to $7. A bit deeper guidance analysis including revenue, GM, opex and a very rough unit mix guidance as we have this quarter (an occasional freebie) may perhaps allow one to cut this range of uncertainty by half. But only by making educated guesses about all the other factors mentioned above can one hope to get within a dime or two. In the end though, a difference of 2% or 3% is not worth arguing much about, IMO.