iPhone supply chain and the indication for iPhone sales in FQ3 2012

  • Posted: 21 May 2012 01:23 AM

    Hi,

    It seems like it’s quite a common thought that iPhone sales will be significantly down sequentially in FQ3 (also look at DT’s last article).

    I did some backtesting yesterday and I am finding a hard time in finding good evidence that this is indeed the case.

    There are two major arguments I read:
    1. Number of iPhones in the inventory supply chain is way up - I looked back 6 quarters, and I saw no indication/correlation that it has to do with the number of iPhones sold in the following quarter. In fact, what is interesting is that there was a similar spike in inventory in FQ2 2011, from 3.5 to 5.2 (48%, which is a litle higher than this quarter, ~43%), and sales in FQ3 2011 were up 142% YoY and up ~9% sequentially.

    2. GM guidance was down sequentially - Apple’s GM guidance is the 2nd best in the last 7 quarters (I guess 2nd best all time as well). Apple has beaten GM guidance by 6% at least in the last 6 quarters, where the average is 9.1% beat, which gives up 45.3% GM, which will be the 2nd best in all times.

    I’m not saying that Apple will sell 37 or 40 millions iPhones this quarter, but I don’t see a reason for a significant decrease.

    What am I missing?

         
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    Posted: 21 May 2012 01:38 AM #1

    neno - 21 May 2012 04:23 AM

    Hi,

    It seems like it’s quite a common thought that iPhone sales will be significantly down sequentially in FQ3 (also look at DT’s last article).

    I did some backtesting yesterday and I am finding a hard time in finding good evidence that this is indeed the case.

    There are two major arguments I read:
    1. Number of iPhones in the inventory supply chain is way up - I looked back 6 quarters, and I saw no indication/correlation that it has to do with the number of iPhones sold in the following quarter. In fact, what is interesting is that there was a similar spike in inventory in FQ2 2011, from 3.5 to 5.2 (48%, which is a litle higher than this quarter, ~43%), and sales in FQ3 2011 were up 142% YoY and up ~9% sequentially.

    2. GM guidance was down sequentially - Apple’s GM guidance is the 2nd best in the last 7 quarters (I guess 2nd best all time as well). Apple has beaten GM guidance by 6% at least in the last 6 quarters, where the average is 9.1% beat, which gives up 45.3% GM, which will be the 2nd best in all times.

    I’m not saying that Apple will sell 37 or 40 millions iPhones this quarter, but I don’t see a reason for a significant decrease.

    What am I missing?

    On number 1 - I could be wrong, but I think there were substantial additional carriers added in Q22011, along with the first full quarter of iphone availability on Verizon. I dont think either of those factors are in play this time (although it will be the very first full quarter available on China Telecom).

    On number 2 - don’t underestimate the amount of iPad 3 sales (likely 20 million+), which will help the GM% substantially.

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    Posted: 21 May 2012 04:22 AM #2

    For now, the safe bet is to expect a downtick in iPhone sales sequentially, though of course, YOY is always the metric that matters most.

    The only way iPhone is getting over 35M this fiscal quarter, IMHO - some combination of Siri in Mandarin (not enough on its own IMHO, and it may not launch until near or after WWDC at this rate), China Mobile getting a 4S (highly unlikely), or “the new iPhone” launching in early June (even less likely). 

    I don’t think you’ll see “Robert-class” LOL independent AAPL analysts reading anything into GM guidance, aside from that you have to add to whatever Oppenheimer gives ya.

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    Posted: 21 May 2012 04:57 AM #3

    Mav - 21 May 2012 07:22 AM

    ?.., aside from that you have to add to whatever Oppenheimer gives ya.

    And multiply it by 1.5 :-D

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  • Posted: 21 May 2012 05:02 AM #4

    Burgess -

    I don’t see how the fact that there are more carriers is a negative impact. If there are now 230+ carriers, the inventory can be divided better between them.
    Regarding the GM - Historically iPhone had better GM than iPad (at least as far as I know).


    Mav - I’m not sure regarding the 35M+, but there is a big difference between 29-30 and 33, which is down sequentially.

    What are your estimates right now?

         
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    Posted: 21 May 2012 05:39 AM #5

    I’m informally starting with 31.5M units.  Derived from my fiscal Q3 thought exercise: http://www.macobserver.com/tmo/forums/viewthread/82636/

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  • Posted: 21 May 2012 11:48 AM #6

    I like to use guidance from Apple (by far the best source of information on the planet regarding AAPL, obviously).

    Apple told us iPhone would be down.
    Apple told us iPad would be up huge sequentially and YoY.
    Apple told us GM% would be down slightly.
    Apple told us revenue would be up slightly.

    The only way to make all these things happen is to see sequential decline in iPhone (they told us this would happen) and sequential increase in iPad (they told us this would happen). It really is that simple.

    I’m at 30M phones and 20M iPads.

         
  • Posted: 21 May 2012 11:52 AM #7

    AT,

    33M is also sequential down.

    I didn’t see a reason why there should be a drastic decrease - did you?

         
  • Posted: 21 May 2012 12:00 PM #8

    neno - 21 May 2012 02:52 PM

    AT,

    33M is also sequential down.

    I didn’t see a reason why there should be a drastic decrease - did you?

    Didn’t see you were at 33M.

    Yes, drastic decrease is coming. Apple told us to expect a big jump in iPad. Only way to reconcile that along with the sequential total revenue increase and decline in GM% is to have a large drop in iPhone. I think this is one of the easiest quarters to estimate in a long time since Apple gave us very specific sequential iPad guidance.

    [ Edited: 21 May 2012 12:08 PM by adamthompson32 ]      
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    Posted: 21 May 2012 03:30 PM #9

    “Specific?”

    Of course iPhone is headed down sequentially, there’s little question of that in my mind.  But specificity of guidance isn’t much higher than it was during the fiscal Q4 2011 conference call.

    [ Edited: 21 May 2012 03:33 PM by Mav ]

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  • Posted: 21 May 2012 04:08 PM #10

    Mav - 21 May 2012 06:30 PM

    “Specific?”

    Of course iPhone is headed down sequentially, there’s little question of that in my mind.  But specificity of guidance isn’t much higher than it was during the fiscal Q4 2011 conference call.

    That guidance was more specific than anything I recall. TC said expect a big sequential increase in iPad. I take him at his word. 20M or bust.

         
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    Posted: 21 May 2012 04:20 PM #11

    We’re actually kind of seeing the same trend, oddly enough.

    We’re both just about equal with estimating 50 million combined iPhones and iPads sold.  My bias is to iPhone by 1.5M units which leaves iPads at a very reasonable 18.5M number for now.

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  • Posted: 21 May 2012 04:40 PM #12

    Mav - 21 May 2012 07:20 PM

    We’re actually kind of seeing the same trend, oddly enough.

    We’re both just about equal with estimating 50 million combined iPhones and iPads sold.  My bias is to iPhone by 1.5M units which leaves iPads at a very reasonable 18.5M number for now.

    Makes sense to me. The most interesting thing (to me) here is that iPad gross margin is obviously much better than people think.

         
  • Posted: 23 May 2012 02:00 PM #13

    adamthompson32 - 21 May 2012 03:00 PM
    neno - 21 May 2012 02:52 PM

    AT,

    33M is also sequential down.

    I didn’t see a reason why there should be a drastic decrease - did you?

    Didn’t see you were at 33M.

    Yes, drastic decrease is coming. Apple told us to expect a big jump in iPad. Only way to reconcile that along with the sequential total revenue increase and decline in GM% is to have a large drop in iPhone. I think this is one of the easiest quarters to estimate in a long time since Apple gave us very specific sequential iPad guidance.

    I’m not at 33, I don’t have a number yet.

    However, I’m just trying to look at this from a different angle.

    The cost of revenue is made also out of the cost of the beginnig inventory minus the ending inventory - Since it’s obvious that the ending inventory will be much lower, this can lower the gross margin.

    5 million iPhones at a cost of 240USD are change about 1.2B USD, which is 0.3%.

    Any thoughts?

         
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    Posted: 25 May 2012 10:16 AM #14

    If this report is to believed, Foxconn is aiming for 400K iPhones per day in their new factory.

    http://micgadget.com/26325/70-of-iphone-production-now-comes-from-foxconns-zhengzhou-plant/

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  • Posted: 25 May 2012 11:23 AM #15

    neno - 23 May 2012 05:00 PM
    adamthompson32 - 21 May 2012 03:00 PM
    neno - 21 May 2012 02:52 PM

    AT,

    33M is also sequential down.

    I didn’t see a reason why there should be a drastic decrease - did you?

    Didn’t see you were at 33M.

    Yes, drastic decrease is coming. Apple told us to expect a big jump in iPad. Only way to reconcile that along with the sequential total revenue increase and decline in GM% is to have a large drop in iPhone. I think this is one of the easiest quarters to estimate in a long time since Apple gave us very specific sequential iPad guidance.

    I’m not at 33, I don’t have a number yet.

    However, I’m just trying to look at this from a different angle.

    The cost of revenue is made also out of the cost of the beginnig inventory minus the ending inventory - Since it’s obvious that the ending inventory will be much lower, this can lower the gross margin.

    5 million iPhones at a cost of 240USD are change about 1.2B USD, which is 0.3%.

    Any thoughts?

    My thoughts are that this is a huge assumption. Why do you assume there will be a shift of 5M phones in inventory? Channel inventory isn’t the same as inventory on Apple’s balance sheet. Most of Apple’s channel, when “filled”, counts as a sale. For example, when Apple ships a phone to BBY it is is channel inventory but the phone itself is already sold. Or maybe I’m missing something here?