June Quarter Gross Margin

  • Posted: 26 April 2011 02:38 AM

    I’m not buying Apple’s June quarter gross margin guidance. Economies of scale work against accepting the number. The iPhone 5 (or whatever it will be called) will set unit sales records from the start of a magnitude we haven’t seen before even by iPhone standards. The iPhone 4 as the legacy, lower-priced handset will also fly off the proverbial shelves.

    I don’t see a scenario for gross margins to fall below 40% in the June quarter. Someone correct me if they see the situation differently.

         
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    Posted: 26 April 2011 03:56 AM #1

    So, DT, you’re in the iPhone 5 this fiscal quarter camp too, eh?

    Since my baseline found me to be too pessimistic on tax rate and GM, I’m thinking Apple will have a 40% GM, minimum, this quarter.  The higher-than-expected OpEx guidance sounds too much like a statement of confidence in a much-better-than $23B revenue number, possibly higher than Q1 (really, more like likely…Apple’s Q3 2010 out-revenued Q1, and iPad 2 will be on a tear this quarter).  Since no one believes Oppenheimer’s “better commodity pricing” deal, that mostly leaves good ol’ fashioned revenue leverage keeping GM at absurdly healthy levels.  iPad 2 will “dilute” margins to some degree but I think vibrant iPhone sales will largely if not completely mitigate this. 

    40.5% GM sounds pretty reasonable to me.

    [ Edited: 26 April 2011 04:34 AM by Mav ]

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  • Posted: 26 April 2011 02:00 PM #2

    Mav - 26 April 2011 06:56 AM

    So, DT, you’re in the iPhone 5 this fiscal quarter camp too, eh?

    From a financial standpoint I’m not concerned whether the iPhone 5 ships in late June or early September nor do I have an opinion on when the product will be officially released.

         
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    Posted: 26 April 2011 04:14 PM #3

    Cross posting from another thread:

    JDSoCal - 26 April 2011 06:41 PM

    Apple Battles ?Mother of All Backlogs? With $11 Billion in Purchase Commitments

    Apple?s purchase commitments rose to $11 billion in the first quarter of 2011, up from $7.9 billion in the fourth quarter of 2010.

    Hmm…that’s a 40% increase in component purchases. If we extrapolate that to component-limited iPad 2 sales, 4.69M * 1.4 = 6.56M.

     

    So, either

    1. Apple is expecting some tremendous revenues,
            and/or
    2. Apple is giving bigger promises to buy which are firmer than previous implications to buy for the coming quarter
            and/or
    3. Apple is giving bigger promises to buy which stretch out across multiple quarters.

    ——- adding

    For those with detailed spreadsheets, there’s quite a few scenarios to explore.

         
  • Posted: 26 April 2011 11:22 PM #4

    Mav - 26 April 2011 06:56 AM

    So, DT, you’re in the iPhone 5 this fiscal quarter camp too, eh? 

    40.5% GM sounds pretty reasonable to me.

    I’m falling into the 405% to 40.7% camp myself, although with revenue where I think its going to come in, an increase in GM% by just 0.1% will have significant affect on EPS.  Should Apple report 41% my estimates are going to be way low.

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    Posted: 27 April 2011 12:15 AM #5

    DawnTreader - 26 April 2011 05:00 PM
    Mav - 26 April 2011 06:56 AM

    So, DT, you’re in the iPhone 5 this fiscal quarter camp too, eh?

    From a financial standpoint I’m not concerned whether the iPhone 5 ships in late June or early September nor do I have an opinion on when the product will be officially released.

    I had been wondering if you’d taken a side on that issue.  “I?m not buying Apple?s June quarter gross margin guidance. Economies of scale work against accepting the number. The iPhone 5 (or whatever it will be called) will set unit sales records from the start of a magnitude we haven?t seen before even by iPhone standards” seemed like you were in the the June-ish iPhone 5 release when I first read it.  My mistake.

    Technically speaking, there’s a possibility that the iPhone 5, even if released this fiscal quarter, will not have a discernible effect on iPhone sales…we could see sequentially flat (basically) sales as with Q2 to Q3 last year.  So, maybe no real Q3 impact.  BUT, I’d much prefer Apple launch the iPhone 5 sooner than later.  There’s a raft of dual-core phones joining the Atrix before long.  Samsung, NVIDIA, TI, they’re all in the game.  Apple is well aware of this and I really don’t expect them to be the sole single-core smartphone vendor on the block for three months without one HELL of a compelling reason.  There might be some negative unit sales impact in fiscal _Q4_ if Android vendors can exploit an iPhone 5 “delay.”

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  • Posted: 27 April 2011 12:21 AM #6

    Gregg Thurman - 27 April 2011 02:22 AM
    Mav - 26 April 2011 06:56 AM

    So, DT, you’re in the iPhone 5 this fiscal quarter camp too, eh? 

    40.5% GM sounds pretty reasonable to me.

    I’m falling into the 405% to 40.7% camp myself, although with revenue where I think its going to come in, an increase in GM% by just 0.1% will have significant affect on EPS.  Should Apple report 41% my estimates are going to be way low.

    i have always said Watch the exchange rates. Apple sets very conservative exchange rates in ROW. About 60% of Apple’s sales are from ROW and with the continued decline in the US$ the exchange gains contribute tremendously to the increase in GM. Apple need not do much in product mix to achieve high GM. Exchange gains will do the work.

         
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    Posted: 27 April 2011 12:37 AM #7

    +1 for the exchange rate

    Example in Canada $ for $ the ipad @ 499$ us should be at 475$ can, not 519 .

    An easy 10% for apple

    I know i should not compare $ for $ but repeat this over 60% of your sales and you get some easy money.

    As long as the us$ stay as it is Apple can increase it’s margin pretty easely.

    As for my long holding in AAPL that’s another story….

         
  • Posted: 27 April 2011 01:36 AM #8

    Mav - 27 April 2011 03:15 AM
    DawnTreader - 26 April 2011 05:00 PM
    Mav - 26 April 2011 06:56 AM

    So, DT, you’re in the iPhone 5 this fiscal quarter camp too, eh?

    From a financial standpoint I’m not concerned whether the iPhone 5 ships in late June or early September nor do I have an opinion on when the product will be officially released.

    I had been wondering if you’d taken a side on that issue.  “I?m not buying Apple?s June quarter gross margin guidance. Economies of scale work against accepting the number. The iPhone 5 (or whatever it will be called) will set unit sales records from the start of a magnitude we haven?t seen before even by iPhone standards” seemed like you were in the the June-ish iPhone 5 release when I first read it.  My mistake.

    Not a mistake. It was my stream of consciousness rambling. But on the iPhone: The margin on the iPhone 4 is rich and will continue to provide rich margins as it moves to the entry-level product slot.

    On the iPhone 5: Demand will be unreal even by iPhone standards. There are economies of scale to be achieved and I expect Apple to make a concerted effort to meet demand due to greater competitive forces this year than last.

         
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    Posted: 27 April 2011 01:41 AM #9

    I strongly agree with Robert’s last paragraph:  demand and economies of scale.  Concerted effort ?  Any music will do.  wa wa wa

         
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    Posted: 27 April 2011 01:48 AM #10

    That was kinda a bad one, Cl4, you’re not getting much of a “reaction” from the crowd.  (wa wa wa)

    Apple sure as hell better have a very efficient, very large ramp-up when iPhone 5 comes along.  Here’s hoping Apple’s bringing capacity online to easily better the iPhone 4’s initial launch.  Part of me kinda hopes Tim Cook is carefully managing iPad 2’s growth even if it means “stealing” A5 supply away from iPad 2 (conceptually speaking).  While Tim and Co. certainly can “call” their desired production volumes, they of course know making a call for “50 million iPad 2s this quarter,” even if demand was there, is an impossible task.  Handsets are the bigger opportunity and iPad is an unquestioned #1 in tablets (with much less competent OS competition, critically), so I’d prefer Apple “sacrifice” a few hundred thousand iPad 2 sales per quarter to make sure it can best meet demand for iPhone 5, which could very easily hit 35-40 million/qtr. volumes (to think, we could be over 100 million iPhones/yr. soon!) within 4-6 quarters.  We think Apple’s GMs are high now, they could get higher still…

    [ Edited: 27 April 2011 03:39 AM by Mav ]

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  • Posted: 27 April 2011 03:00 AM #11

    michelc - 27 April 2011 03:37 AM

    +1 for the exchange rate

    Example in Canada $ for $ the ipad @ 499$ us should be at 475$ can, not 519 .

    An easy 10% for apple

    I know i should not compare $ for $ but repeat this over 60% of your sales and you get some easy money.

    As long as the us$ stay as it is Apple can increase it’s margin pretty easely.

    As for my long holding in AAPL that’s another story….

    Exchange rates. I had overlooked them.

    Consider that since the Japanese earthquake, Japan has been buying Yen from around the to pay for the rebuilding. This has driven the Yen to unprecedented levels, making foreign produced products far cheaper in a critical market.

    I could readily accept 41% GM with this in mind.

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    Posted: 27 April 2011 03:38 AM #12

    adamthompson3232 - 27 April 2011 05:19 AM

    Mav, I assume you meant 35-40M per quarter?

    Yes.  Yes I did.  Thanks for the heads-up.

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