Q1 iPhone Sales Estimate

  • Posted: 07 November 2011 10:50 AM #46

    Any product in the channel is classified as sold, regardless of final destination (Walmart, Target, AT&T, Apple Store).

    The reason people want to know changes in channel is to understand what the sell-through actually was (this is the solution to the shipped vs. sold dilemma).

    If I “sold” 10 million iPhones, but I increased the channel by 2 million, customers actually bought only 8 million iPhones.

    For Apple, the only reason to know this channel info is to project future needs for channel adjustment. It would be helpful for other companies (Samsung) to announce channel sizes, but you will have to keep dreaming.

         
  • Posted: 07 November 2011 11:29 AM #47

    adamthompson3232 - 07 November 2011 02:57 PM
    Sammy the Walrus IV - 07 November 2011 02:50 PM

    Any product in the channel is classified as sold, regardless of final destination (Walmart, Target, AT&T, Apple Store).

    The reason people want to know changes in channel is to understand what the sell-through actually was (this is the solution to the shipped vs. sold dilemma).

    If I “sold” 10 million iPhones, but I increased the channel by 2 million, customers actually bought only 8 million iPhones.

    For Apple, the only reason to know this channel info is to project future needs for channel adjustment. It would be helpful for other companies (Samsung) to announce channel sizes, but you will have to keep dreaming.

    I may be wrong but shipments to Apple stores don’t count as sold until the phone actually sells to a customer. I believe everything else is accurate re: 3rd party retailers though.

    I re-read the 10K to check the language. Didn’t see anything to suggest Apple stores would be treated differently than any other retailer.  While I am not a currently practicing accountant, I don’t recall ever running into a situation where product shipped to a company’s branded- stores is accounted for differently then 3rd party distributors.

         
  • Posted: 07 November 2011 11:58 AM #48

    Sammy the Walrus IV - 07 November 2011 03:29 PM
    adamthompson3232 - 07 November 2011 02:57 PM
    Sammy the Walrus IV - 07 November 2011 02:50 PM

    Any product in the channel is classified as sold, regardless of final destination (Walmart, Target, AT&T, Apple Store).

    The reason people want to know changes in channel is to understand what the sell-through actually was (this is the solution to the shipped vs. sold dilemma).

    If I “sold” 10 million iPhones, but I increased the channel by 2 million, customers actually bought only 8 million iPhones.

    For Apple, the only reason to know this channel info is to project future needs for channel adjustment. It would be helpful for other companies (Samsung) to announce channel sizes, but you will have to keep dreaming.

    I may be wrong but shipments to Apple stores don’t count as sold until the phone actually sells to a customer. I believe everything else is accurate re: 3rd party retailers though.

    I re-read the 10K to check the language. Didn’t see anything to suggest Apple stores would be treated differently than any other retailer.  While I am not a currently practicing accountant, I don’t recall ever running into a situation where product shipped to a company’s branded- stores is accounted for differently then 3rd party distributors.

    In at least one past Earnings Conference Call, Peter Oppenheimer made that exact distinction between iPhone shipments to Apple retail stores and those to resellers. That makes sense to me because an unsold iPhone at an Apple retail store is still within the company while an iPhone shipped out under contract to a reseller has a quite different financial status.

         
  • Posted: 07 November 2011 02:51 PM #49

    Apple does not carry inventory on iPhones until they are shipped from Foxconn, so the iPhone build for this quarter would not be in the channel but stay in Foxcomm’s factories and warehouses.  Foxconn would carry the inventory, as finished goods or WIP (work in progress).  It would be logical to expect that Apple would pre-pay for this amount of inventory.  Apple?s balance sheet has an asset listed as ?Vendor non-trade receivables?.  I presume that this is the same as pre-paid expenses.  This increased almost $2 billion year to year.  I suggest that this is inventory build up for the present quarter.  At a cost to Apple of $200 to $250, this would represent a build up of 8 to 10 million iPhones as of September 24.  The iPhone 4S went on sale about three weeks later.  Apple (Foxcomm) is making ca. 2 million (0r more) iPhones a week.  During the three week hiatus they could easily have built another 6 million phones, so Apple could have had as many as 14 to 16 million iPhones ready to go on launch day.  If my reasoning is correct, Apple should sell 35 to 40 million phones this quarter.

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  • Posted: 09 November 2011 02:59 AM #50

    That makes a lot of sense westech except I hunk the cost to apple will be more like 350-400 ea assuming the Foxconn inventory was entirely iphone4s indicating 5-6 million phones tacked on to this quarter.  Anyway the market typically overreacts to small news and under reacts to big news.  This is built into human psychology.  If apple does sell 40 million iPhones the stock will probably be up only 5-7% after hours and present a great buying opportunity.

         
  • Posted: 09 November 2011 03:27 AM #51

    AndrewLing - 09 November 2011 06:59 AM

    That makes a lot of sense westech except I hunk the cost to apple will be more like 350-400 ea assuming the Foxconn inventory was entirely iphone4s indicating 5-6 million phones tacked on to this quarter.  Anyway the market typically overreacts to small news and under reacts to big news.  This is built into human psychology.  If apple does sell 40 million iPhones the stock will probably be up only 5-7% after hours and present a great buying opportunity.

    If AAPL only gets to $450 prior to JAN earnings (I’m targeting $470), then 5%/7% pop will be a big deal…($22 - $31). Post earnings pop will be tempered by March quarter guidance (historically the lowest performing quarter on the year).

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    Posted: 09 November 2011 04:05 AM #52

    Gregg Thurman - 09 November 2011 07:27 AM

    If AAPL only gets to $450 prior to JAN earnings (I’m targeting $470), then 5%/7% pop will be a big deal…($22 - $31). Post earnings pop will be tempered by March quarter guidance (historically the lowest performing quarter on the year).

    Historically, post Jan earnings is down because next Q is the lowest performing quarter and there are no news in Feb and Mar.

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    Posted: 09 November 2011 04:21 AM #53

    Mace - 09 November 2011 08:05 AM
    Gregg Thurman - 09 November 2011 07:27 AM

    If AAPL only gets to $450 prior to JAN earnings (I’m targeting $470), then 5%/7% pop will be a big deal…($22 - $31). Post earnings pop will be tempered by March quarter guidance (historically the lowest performing quarter on the year).

    Historically, post Jan earnings is down because next Q is the lowest performing quarter and there are no news in Feb and Mar.

    IPad 3 should help this year if it lands in early march.

    And just maybe a apple HDTV smile

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    Posted: 09 November 2011 04:23 AM #54

    westech - 07 November 2011 06:51 PM

    Apple does not carry inventory on iPhones until they are shipped from Foxconn, so the iPhone build for this quarter would not be in the channel but stay in Foxcomm’s factories and warehouses.  Foxconn would carry the inventory, as finished goods or WIP (work in progress).  It would be logical to expect that Apple would pre-pay for this amount of inventory.  Apple?s balance sheet has an asset listed as ?Vendor non-trade receivables?.  I presume that this is the same as pre-paid expenses.  This increased almost $2 billion year to year.  I suggest that this is inventory build up for the present quarter.  At a cost to Apple of $200 to $250, this would represent a build up of 8 to 10 million iPhones as of September 24.  The iPhone 4S went on sale about three weeks later.  Apple (Foxcomm) is making ca. 2 million (0r more) iPhones a week.  During the three week hiatus they could easily have built another 6 million phones, so Apple could have had as many as 14 to 16 million iPhones ready to go on launch day.  If my reasoning is correct, Apple should sell 35 to 40 million phones this quarter.

    A lot of that could have also been iPad 2 units being stockpiled for Xmas season.

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  • Posted: 09 November 2011 07:50 AM #55

    AndrewLing - 09 November 2011 06:59 AM

    That makes a lot of sense westech except I hunk the cost to apple will be more like 350-400 ea assuming the Foxconn inventory was entirely iphone4s indicating 5-6 million phones tacked on to this quarter.  Anyway the market typically overreacts to small news and under reacts to big news.  This is built into human psychology.  If apple does sell 40 million iPhones the stock will probably be up only 5-7% after hours and present a great buying opportunity.

    This exercise was only intended to give a ball park figure.  It’s hard to pick a good number.  Inventory is usually valued at lower of cost or market.  The average selling price of the iPhone 4 was about $660.  This includes peripherals and shipping.  The COGS ran about 40%.  If I assume that the actual unit selling price ex peripherals and shipping is $600 and the COGS on the new model is 45%, I get $270, but this assumes that the product is 100% finished.

    All this assumes that Apple pre-pays 100% of the cost.  It is likely that some percentage would be witheld until the product it delivered (10 to 20%?)

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  • Posted: 09 November 2011 08:13 AM #56

    westech - 07 November 2011 06:51 PM

    Apple does not carry inventory on iPhones until they are shipped from Foxconn, so the iPhone build for this quarter would not be in the channel but stay in Foxcomm’s factories and warehouses.  Foxconn would carry the inventory, as finished goods or WIP (work in progress).  It would be logical to expect that Apple would pre-pay for this amount of inventory.  Apple?s balance sheet has an asset listed as ?Vendor non-trade receivables?.  I presume that this is the same as pre-paid expenses.  This increased almost $2 billion year to year.  I suggest that this is inventory build up for the present quarter.  At a cost to Apple of $200 to $250, this would represent a build up of 8 to 10 million iPhones as of September 24.  The iPhone 4S went on sale about three weeks later.  Apple (Foxcomm) is making ca. 2 million (0r more) iPhones a week.  During the three week hiatus they could easily have built another 6 million phones, so Apple could have had as many as 14 to 16 million iPhones ready to go on launch day.  If my reasoning is correct, Apple should sell 35 to 40 million phones this quarter.

    Great work Westech! I think you’ve nailed a key figure. This fits exactly with what my theory/hope has been regarding this quarter. Getting rid of the ‘why can’t you do a better job predicting demand’, ‘why can’t you produce more for launch’ questions and actually being able to meet consumer demand for a launch quarter will be a brand new experience. I had been postulating that if Tim Cook could do one thing, his goal would be to create a launch quarter with enough units ready to go to market. I have thought that this was a factor in the timing of the later launch as well.

    We’ve seen many anecdotal reasons to believe this is more than just a theory including more countries at launch even when having more carriers to seed (very happy to pick up a 4S in Canada on day 1), faster expansion to more countries (2nd stage release), and much shorter lines and waits than we’ve seen previously. The lines and waits just haven’t been the same story this year and I believe this is due to supply as opposed to changes in ordering processes. If you don’t believe this is a key strategy for this launch quarter, I think you’d have to reverse the theory and say demand is reduced this year. I sure don’t see that as being true, though I haven’t seen much in the way of ‘channel check’ numbers so far.

    My thought was this quarter would be huge for iPhone, but even given this premise it means we’re in a difficult area for modelling the numbers as we’ve never had anywhere near enough supply in previous years. We’ve also never had 2 older models that included a “free” version. I was way too optimistic on iPad numbers last quarter which was mostly predicated on supply finally meeting demand and the channel inventory boost (we finally ran the experiment with enough supply but I didn’t get the sales I had hypothesized). I’m feeling a little wary now of overestimating the impact of having supply so much better than in past launches. It’s worth a lot, but how much?

    [ Edited: 09 November 2011 08:27 AM by cranium ]      
  • Posted: 09 November 2011 11:54 AM #57

    iOSWeekly - 09 November 2011 08:23 AM
    westech - 07 November 2011 06:51 PM

    Apple does not carry inventory on iPhones until they are shipped from Foxconn, so the iPhone build for this quarter would not be in the channel but stay in Foxcomm’s factories and warehouses.  Foxconn would carry the inventory, as finished goods or WIP (work in progress).  It would be logical to expect that Apple would pre-pay for this amount of inventory.  Apple?s balance sheet has an asset listed as ?Vendor non-trade receivables?.  I presume that this is the same as pre-paid expenses.  This increased almost $2 billion year to year.  I suggest that this is inventory build up for the present quarter.  At a cost to Apple of $200 to $250, this would represent a build up of 8 to 10 million iPhones as of September 24.  The iPhone 4S went on sale about three weeks later.  Apple (Foxcomm) is making ca. 2 million (0r more) iPhones a week.  During the three week hiatus they could easily have built another 6 million phones, so Apple could have had as many as 14 to 16 million iPhones ready to go on launch day.  If my reasoning is correct, Apple should sell 35 to 40 million phones this quarter.

    A lot of that could have also been iPad 2 units being stockpiled for Xmas season.

    The ca $2 billion is the year to year increase.  There is plenty there to cover iPad builds as well as all of Apple’s other products.

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    The measure of the worth of a product is how much people are willing to pay for it, not how many people will buy it if the price is low enough.

         
  • Posted: 09 November 2011 02:50 PM #58

    cranium - 09 November 2011 12:13 PM

    Getting rid of the ‘why can’t you do a better job predicting demand’, ‘why can’t you produce more for launch’ questions and actually being able to meet consumer demand for a launch quarter will be a brand new experience. I had been postulating that if Tim Cook could do one thing, his goal would be to create a launch quarter with enough units ready to go to market. I have thought that this was a factor in the timing of the later launch as well.

    Above all else Apple is a marketing wonder supported by “insanely great” engineering and manufacturing prowess. Apple’s marketing extends into all facets of the Company’s operations, from its secrecy (let the blogosphere/rumor mills create product hype) to earnings reports and conference calls.

    Nothing is more powerful than announcing “we shipped 23% more xx than last quarter and demand continues to remain high (as evidenced by lines and back orders).

    Additionally, building to meet 80% - 90% of anticipated demand allows you to know exactly how many units you are going to ship, and by extension, what the impact on earnings will be.

    Right now the world is focused on iPhone and iPad results. Better to control availability on those in order to increase desire (no better way to make someone want something than to tell them they can’t have it), and to control earnings accuracy and expectations.

    On new and/or greatly enhanced products I don’t think you’ll ever see Apple balance manufacturing with initial demand. The short term benefits are outweighed by the bigger picture.

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  • Posted: 10 November 2011 10:44 PM #59

    Gregg Thurman - 09 November 2011 06:50 PM
    cranium - 09 November 2011 12:13 PM

    Getting rid of the ‘why can’t you do a better job predicting demand’, ‘why can’t you produce more for launch’ questions and actually being able to meet consumer demand for a launch quarter will be a brand new experience. I had been postulating that if Tim Cook could do one thing, his goal would be to create a launch quarter with enough units ready to go to market. I have thought that this was a factor in the timing of the later launch as well.

    Above all else Apple is a marketing wonder supported by “insanely great” engineering and manufacturing prowess. Apple’s marketing extends into all facets of the Company’s operations, from its secrecy (let the blogosphere/rumor mills create product hype) to earnings reports and conference calls.

    Nothing is more powerful than announcing “we shipped 23% more xx than last quarter and demand continues to remain high (as evidenced by lines and back orders).

    Additionally, building to meet 80% - 90% of anticipated demand allows you to know exactly how many units you are going to ship, and by extension, what the impact on earnings will be.

    Right now the world is focused on iPhone and iPad results. Better to control availability on those in order to increase desire (no better way to make someone want something than to tell them they can’t have it), and to control earnings accuracy and expectations.

    On new and/or greatly enhanced products I don’t think you’ll ever see Apple balance manufacturing with initial demand. The short term benefits are outweighed by the bigger picture.

    I may agree with you to some extent, getting the long lines on opening day generates excitement and press coverage, and the need to line-up may be fed by the fear of not getting a new iPhone once the stock outs begin.

    But, in the past, the extent and duration of the shortages has been excessive. Last year with the iPhone 4, I waited weeks to snag one and this meant calling local carrier stores several times a week or visiting them at lunch to see if a new shipment came in. Queuing with fellow crazies on launch day is a nice social expertise, stalking local carriers for a new device week after week is torture. This was not a memorable user experience, and every user experience related to the product counts [edit-actually it was very memorable, but it was definitely not pleasurable. See last year’s thread]. I know people who were iPhone users who actually got so fed up that they jumped ship to Android. We know from the retention surveys that is a rare event. While that may be rare, think of all the carrier traffic that was generated into their stores when the answer was, ‘we have no idea when we’ll get more, when they come they disappear in minutes’. If this was a person ready to switch from a feature phone, you know the salesperson would try to sell them on a nice Android phone when they had them in store and ready to fork over the cash. You can hear the speech, “This is very much like iPhone, even better in my opinion, and it’s cheaper and ... you can have it today!”. At least here in Canada, other than at launch time, all the flyers and displays show everything BUT iPhones in the common materials, making it obvious that the push is to sell these competing models that require a smaller subsidy whenever possible.

    So, I’m going to take Tim Cook’s word for it when he has commented that they really wish they could have anticipated demand better. He has said, “we are quoting longer lead times that we’d like”. Not only do I believe him, I think he now has enough data and experience with production to have better prepared for the launch of the 4S than with any previous launch. I’m going with the take that crushing the iPhone numbers and adding that they improved both production and the ability to predict demand is an even a more powerful message than to announce lower sales figures with an accompanying admission that demand was far beyond what was expected.

    [ Edited: 11 November 2011 07:50 PM by cranium ]