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Recalibrating Estimates in the Midsummer of Apple’s Growth
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This is only a rank amateur, often way-off-the-mark home gamer’s rambling thoughts. Feel free to add your own recalibration strategies if you’re recalibrating as well.
Anyway, I think I’ve been learning a bunch from the Apple earnings info from the past two quarters. The proof will be in the accuracy of my fiscal Q3 estimates.
These are the three overarching hypotheses that I’ll be applying to recalibrate going forward, and hopefully I’m on the right track:
First, Apple growth rates are currently peaking.
Of course there’s still the TV market and maybe other tremendous markets we’ve yet to dream of, radically different versions of the types of mobile devices we use now years down the road, etc., but let’s stick with this medium-term assumption for now.
By peaking I of course don’t mean that Apple is peaking. Nor do I mean to suggest that slowing growth is any kind of decline - I see companies much older than Apple doing just fine. I expect Apple to be a restless megacompany that, even at a $300B, $400B, $500B? revenue level, will still be as innovative and customer-focused (and paranoid about the competition) as it has ever been, even as it is more powerful and profitable than ever.
What I do mean is that there probably aren’t many quarters of iPhone supergrowth left, and iPad, which is progressing much more quickly than iPhone, is likely not far behind. The smartphone growth rate is slowing (a little under 50% if I remember Tim’s CC remarks right, and iPhone is propping up the rate). Sure, smartphones could one day be a 1B or so units/year market. In projecting tablets to be a PC-sized market in terms of units, that ceiling appears lower - 350M or so units per year by 2015, per the sources Tim cited at the CC.
I don’t see iPhone doubling or near-doubling YOY to even 500M units/fiscal year anytime soon (it’s already at a 130-150M units/fiscal year run rate as it is and could hit that mark at that kind of growth rate in less than 2-3 years). I similarly don’t see iPad more than doubling YOY to a lofty 250M units/year (from what is likely to be a 60+M units/fiscal year run rate in FY ‘12) in less than two years. By this I basically mean Apple won’t hit these “targets” and then have growth fall off a cliff. It’ll be a more gradual transition and I think it’s upon us now. The 88% iPhone unit growth, while obviously awesome, may be the first clue. Yes, India and China Mobile (which should help contribute to a few _epic_ iPhone unit sales spikes), but other major markets will also have moderating growth at the same time. And even if the world were to someday have 6B active cel phone users (I’m a little skeptical about Wikipedia’s data here: http://en.wikipedia.org/wiki/List_of_countries_by_number_of_mobile_phones_in_use), they won’t all be on smartphones, and they won’t be switching phones every year. I mean, smartphones cost money, yo.
Second, Apple’s quarterly behavior may be getting more “predictable.”
Maybe it’s Tim’s modus operandi over Steve’s, maybe it’s just the way it was supposed to be as Apple kept growing and establishing the iEmpire and adding points of sale and more elaborate production and distribution/sellthrough pipelines..but anyway.
iPhone 4S has launched in less than six months into countries with a combined population of over 5 billion (100 countries, 230 carriers). iPad will catch up very quickly, currently launched in 40 countries and likely to get to 100 (or close to it) in a similar span of time. Apple is getting to the point where the shipping lanes and relationships no longer have to be built on the fly anywhere near as much as before.
iPad is looking like a March deal. iPhone is looking like a September/October deal given the WWDC/iOS release cadence. (Macs really “don’t matter” anymore for estimation purposes given growth ranges and the mostly stagnant PC market in general.)
In other words, with a primed distribution network, mercilessly efficient process improvement/ramp-up/roll-out/distribution methodologies being constantly refined and improved over time, and the benefits of a fairly predictable launch schedule (Horace Dediu makes a very good point about Apple’s selling its breadwinner iPhone into two holiday markets in two consecutive fiscal Qs), we may be on the cusp of observing a pattern where iPhones and iPads will mostly peak in the first quarter of supply/demand balance given that the supply/demand balance persists for, say, 6-8 weeks in the first- and second-stage launch markets. I see this for iPhone “5S” if not for “the new iPhone” - as for iPads, still gathering data.
(While it’s true that Apple is motivated to reach as many people in as many markets as possible as quickly as possible - and adding China as a launch country is probably a goal in Apple’s mind - I think it’s also worth considering that Apple likely has little incentive to sell x units in a peak 13-week quarter and, say, only 0.75x or less units in the next 13-week quarter, where the product will have been sold less than 26 weeks. It seems like a more chaotic way to launch a product and would be jarring to Apple, the supply chain, etc.)
Third, we may be gaining further insights into which conference call clues from Cook and Oppenheimer need further attention, and which ones should be “ignored.”
- Sequential upticks in revs/EPS guidance is a useful clue.
- So is OpEx guidance. (?)
- GM enthusiasm dampening is not useful.
- Commentary on expecting sequential declines, at least, could be very useful.
- Commentary on the component environment counterbalances GM notes of caution?
- Commentary on channel inventory is useful, but exactly how well can it be extrapolated to quarterly unit sales expectations?There’s also the details of the annual reports (CapEx, etc.) to consider, and I need to get better at absorbing every insight I can from SEC filings.
[ Edited: 26 April 2012 05:52 AM by Mav ]Signature
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Thanks, Steve. -
Very interesting Mav. You may only consider yourself an amateur but I value your opinion a lot (as I do many other members of AFB who have unknowingly helped me in the past few months). I don’t know enough about details and intricacies yet to post a good response, but I do believe you are mostly correct. One question though, do you really see Apple becoming a $500 billion in revenue company? If so, when?
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This is a part theoretical, part practical exercise. The practical elements are going into my recalibration.
Signature
The Summer of AAPL is here. Enjoy it (responsibly) while it lasts.
AFB Night Owl Team™
Thanks, Steve. -
This is a part theoretical, part practical exercise. The practical elements are going into my recalibration.
Grat post Mav, appreciated! Now we just need some new revolutionary/evolutionary products to throw off that cadence.
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Mav,
Good post but
IMHO you are writing off the Mac prematurely.
A refresh cycle is upon us .....numbers will look much better, and matter, soon.
Also, iPad is on a trajectory toward 200 m units a year by 2015 or 2016
Even at asp of 500, that is 100 b alone in revenues.
[ Edited: 26 April 2012 09:28 AM by Xtra ]Signature
One trillion or bust
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When I look at my EPS models (probably calling models makes claims for them that are inflated
), I dial down growth to 75% for the second half of this fiscal year, and then down to 50% for FY 2013.Still gets me to $52 for FY 2012 and $78.21 for FY 2013.
Then I discount P/E to 12 and - my Jan 2014’s still make boatloads of money if held into October/November of 2013.
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When I look at my EPS models (probably calling models makes claims for them that are inflated
), I dial down growth to 75% for the second half of this fiscal year, and then down to 50% for FY 2013.Still gets me to $52 for FY 2012 and $78.21 for FY 2013.
Then I discount P/E to 12 and - my Jan 2014’s still make boatloads of money if held into October/November of 2013.
Nice conservative targets.
However Apple revenues have increased on average of 65% a year for the last 5 years. I see no reason for that not to continue for another 5. Yes you are only looking at this year and next, but I think the last two quarters provided us with a good road map into the future.
This quarter when the iPad and iPHone numbers come out it will still shock WS once again, and then in the 4th quarter we have new Macs and possibly a new iPhone, the eps growth should maintain at least 80% growth into next year.
The reason for that is that I think FY12 is building a good base to further propel the HALO affect. So many new folks are beign expoxed to Apple products for the first time, either by a new Mac, iPad, or iPHone, that those folks will buy another product soon after.
We have hit a tipping point where only supply dictates the rate of growth from now on.
And if Apple TV does come out, watch out next year.
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Having just bought Apple TV and using it, I can only see that Apple will release a major new product in this area. Every time I use it I cannot help but form this conclusion.
And I have happily disposed of my DVD player and its horrible remote.
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Gregg Thurman
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Apple is different. Period.
Look at MSFT. They’ve been a one trick pony since DOS. MSFT enhanced DOS with the Windows layer, and made it more useful with Office, but they are still just a one trick pony. MSFT’s culture prevents them from doing anything that threatens Windows, which is why Windows looks and smells like an overly made up, perfumed, over weight, aging whore.
The same can be said of Nokia, RIMM, Dell, HP, INTC, HTC and Google. They each had their differentiating strengths, but only one. Their core products evolved as did Windows into aging whores.
Apple has computers, music players, handsets, tablets and unifying services, each disruptive of the category it competes in. And those categories are huge. Growth in some markets may be nearing saturation, but the scope of emerging markets are larger than the maturing markets.
I can’t imagine Apple not having a market disruptive plan to further monetize iCloud. That plan may include a TV, I don’t know. For all any of us know, the TV rumors may have been started by Apple themselves, to misdirect the competition into wasting R&D dollars and more importantly, time.
What I do know is that the culture Steve Jobs created at Apple, has a top heavy reliance on innovation, not just in its core products, but in areas Apple has never competed before.
This, more than anything else, leads me to believe that, as a trillion dollar Company, Apple will continue to grow revenues well above 50% per annum into the foreseeable future (5 years?). As an investor, looking beyond 5 years with a Company like Apple is a waste of time.
What’s really nice about the next 5 years (and beyond), is that Apple is going to pay us for taking the ride.
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You can’t do more, make more, be more, than the next guy, if you think like the next guy. Think different.
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Gregg Thurman
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Having just bought Apple TV and using it, I can only see that Apple will release a major new product in this area. Every time I use it I cannot help but form this conclusion.
And I have happily disposed of my DVD player and its horrible remote.
Our “TV” consumption has dropped to 2, maybe 3 programs, since we bought our first Apple TV, and for those we have to pay about $80/month. I can’t wait for ala carte.
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You can’t do more, make more, be more, than the next guy, if you think like the next guy. Think different.
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We recently ditched our Dish network and opted to just use Netflix streaming and Apple TV. We also only watch a handful of shows (who has the time anymore) So we just purchase the whole season from iTunes which still turns out to be cheaper than paying Dish $50 every month.
So far, I don’t miss Dish one bit. This seems far fetched but Apple buying Netflix wouldn’t be a bad idea.
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Mav, beautiful initial post. I’ve kept it on my browser since the 26th, using it as inspiration while I work my projections for this next quarter.
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Thanks, we’ll see if I can get closer to the mark this time around. And with Apple, the roadmap is always subject to change. Kind of like the AAPL trading trend and the fortunes of my portfolio. *reaches for the motion sickness bag*
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The Summer of AAPL is here. Enjoy it (responsibly) while it lasts.
AFB Night Owl Team™
Thanks, Steve. -
adamthompson32
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One of the industry analysts projects smart phones to be 1.7B units per year by 2016. Who knows. But this is a huge market.
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I’m skeptical of 1.7B smartphones by 2016.
That presumes an enormous smartphone installed base given replacement cycles. And a demographic of…age 3 to 99? Apparently there’s 6B handsets in active use but I expect “convergence” the smarter the handsets get. How many of us (not in enterprise, which I wouldn’t expect to be a billion-sized market by any means) have multiple smartphones in active use? “One for home, one for work” sounds more like an iPad/iPhone combination use case than a two-smartphone use case.
I’m not skeptical of Apple’s ability to dominate in a fair playing field - see, uh, the entire US smartphone market. But this _is_ the estimate recalibration thread. We know Apple’s winning big in smartphones and could even win whatever smartphone endgame there is in whatever metrics (like profit) really matter. The more immediate question is, how to get more accurate estimates?
Btw, where were you for fiscal Q2 AT?
[ Edited: 05 May 2012 02:40 AM by Mav ]Signature
The Summer of AAPL is here. Enjoy it (responsibly) while it lasts.
AFB Night Owl Team™
Thanks, Steve. -
adamthompson32
- [ Ignore ]
I’m skeptical of 1.7B smartphones by 2016.
That presumes an enormous smartphone installed base given replacement cycles. And a demographic of…age 3 to 99? Apparently there’s 6B handsets in active use but I expect “convergence” the smarter the handsets get. How many of us (not in enterprise, which I wouldn’t expect to be a billion-sized market by any means) have multiple smartphones in active use? “One for home, one for work” sounds more like an iPad/iPhone combination use case than a two-smartphone use case.
I’m not skeptical of Apple’s ability to dominate in a fair playing field - see, uh, the entire US smartphone market. But this _is_ the estimate recalibration thread. We know Apple’s winning big in smartphones and could even win whatever smartphone endgame there is in whatever metrics (like profit) really matter. The more immediate question is, how to get more accurate estimates?
Btw, where were you for fiscal Q2 AT?
Where was I for what? I was at $12.75 EPS. Sequential iPhone growth of one unit. All I’m doing is multiplying guidance by 1.5. It really is that simple. Sure, if you want to be a little less bullish than Apple management is, you can use something like 1.45 to get a good conservative EPS estimate.
