Monday, March 28, 2011

It's earnings time again....

It's earnings time again, so that means it's time to project what I believe Apple accomplished last quarter.  As most of you know, there are some of us amateur analysts (bloggers) that are focused on predicting the key metrics that drive Apple's growth.. Also, Phillip Elmer Dewitt at publishes these results, pitting us against the pros in what he has dubbed -  "The earnings smackdown." 

This has turned into quite an event every 3 months - So much so, that some of us got National TV exposure on CNBC.  That blew me away.  Last quarter I hit the gross margin on the button, and because of that, my name was thrown into the neon lights..  This is funny - and actually quite fun.  One of the amateurs that receives much praise and publicity is Daniel Tello over at Deagol's Apple Model.  Mr Tello has come up with a ranked list that we call the Deagol rankings.  I currently rank 25th out of 40 on this list. BUT - I came in at the 8th spot last quarter.. While this is exciting being involved with these guys, I'm a little disapointed in my overall rank, and I'm absoutely motivated to improve my position.

So with no further ado... Here's my numbers... with some explanations..

Revenue -   $25,505b       89% increase

EPS  - - - - -     $6.21       86%  increase

iPhones - -    17.360m      98%  increase

iPads - - -      6.950m        NA

Macs - - -       3.704m       26%  increase 

iPods - - -       9.980m         9%  decrease

GM - - - - -        40.2%

This has been an extremely difficult quarter to predict. So many varibles to weigh in on..

  1. The Verizon iPhone launch
  2. The iPad 2 launch
  3. 2 day international launch for iPad 2
  4. Crazy demand for both products
  5. Discounted prices on iPad 1 and iPhone 3G
  6. Supply contstraints on both products (some believe this is a myth)
  7. The disaster in Japan

I have weighed all of these variables and scoured the internet for facts and figures, and I feel pretty good about these numbers..  Some might say that an 89% and 86% increase in revenue and EPS respectively is too aggresive.. I think not. 

Some interesting facts:

iPad sales and increased iPhone sales adds an additional 10 billion in revenue to last years  Q2 total.
  • There was no iPad last Q2  - It did not even exist.  Everybody was waiting for it, but it did not launch until April..  The iPad added 4.5 billion in revenue this quarter alone.  That's roughly 36% of the total 13.5 billion that reported last year at this time.   WOW - incredible. 
  • iPhone sales have doubled - This adds another 5.5 billion to that 13.5 billion reported last year. 
Those 2 factors alone can damn near justify my revenue estimate. Add in increased Mac sales, iTunes revenue, and of course the iPod and some might think that my $25.505 billion estimate is short....  

Now I'd like to review a few predictions that I made back in September 2010. (5 months back) Apple's share price was at $282.  Today it closed at $350.  Here's what I said:

Apple will open up the iPhone to other carriers in the first 6 months of 2011.
  • I was right about this one, but - I said that T-Mobile would be first..  Of course I included Verizon, but I did make that statement about T-Mobile.  Now it looks like T-Mobile will be brought into the mix with the ATT deal... I also said that the inclusion of other carriers would be timed with the launch of iPhone 5.  Apple surprised me by bringing Verizon on board in February.. (earlier than I thought)
Apple will sell 33 million iPads in FY11.
  • With the 6.9 million I'm saying they have sold, added to the 7.3 million last quarter, we are well on our way to eclipsing that 33 million estimation.  My estimation looks to be a little short. The iPad is the biggest hit that Apple has had yet. I am increasing my estimation for FY 11. Apple will sell 9.8 million in Q3 and 16.7 million in Q4 to bring the total to 40 million.  Too bold?  I think not.  Here's a fact for you.  The iPhone - in it's first 2 YOY quarters - increased sales by 166% and 516%. This was Q3 and Q4 of FY 08. These are the same 2 sequential quarters for the iPads first 2 YOY sales.  I'm saying the iPad will increase sales by 200% and 309% in Q3 and Q4 11 respectively.
Apple will sell 52 million iPhones in FY11, a 45% increase YOY.

  • I was woefully short on this estimation - it looks like we will hit 80 million iPhones in this current fiscal year - I have Q3 at 20 million, and Q4 at 27 million iPhones sold..
Apple will sell 17 million MACs in FY11
  • Right on target, I believe - Q3 will be at 4.3 million, and Q4 at 4.8 million.  We are sitting on 8 million after this quarter.. add em up.
90 Billion revenue in FY11 
  • 90 billion easily.. in fact we'll do 110 billion in FY 11
EPS for FY2011 - $22.50
  • We'll do $27
Stock price January 2012 - $400.00
I made those prognostications for a reason;  I wanted to see how close I could get by publishing my best futures bet if you will..  Amazing really - I thought I was making bold predictions at that time..  Now it seems as if those numbers were incredibly simple to stick on the wall.. It didn't feel that way 5 months ago.

Revenue and EPS for the next 2 quarters:

Q3 - $28.6 b    /    $6.90
Q4 - $35.3 b   /     $8.12

No underestimation this time.....   China is real!

Thanks for stopping by,


  1. Great post Dennis. Just wanted to let you know I'm planning on changing the ranking methodology from including all the variables published by PED, to just including revenue and EPS. I think PED will continue to do the comprehensive ranking and I want to differentiate my list.

    I'll also try to compile all of the smackdown data published by PED over more than two years to expand the scope of the cummulative rankings (the earliest ones include mostly pro analysts and Turley (who nailed most or all of those), Andy, and myself.

    Since your average will cover fewer quarters, that means your estimates will carry more weight (at least for a few more quarters) towards your average and thus can move the needle on your rank more than the three of us old-timers and some of the pros. Seeing your estimates here, I'm confident you'll achieve a much better rank.

    For a while now I've been thinking on this, given the strong argument that some unit numbers are not as relevant as EPS and revenue (iPods is a perfect example) and shouldn't carry the same weight. And since these unit estimates and the GM estimate already affect the revenue and EPS estimates, they still will have some representation in the ranking. I'll be posting about this within the next week or two.

    Good luck!

  2. Thanks Deagol.. I'm anxiously awaiting the conference call.. I'll be looking for your post..