Wednesday, October 10, 2012

My Estimates for FY Q4 2012

Apple reports earnings after the close on October 25th, a Thursday, which is unusual.  The world is trying to guess, "Why Thursday? It's usually Tuesday..  I don't care.

The numbers:
Revenues:  $39.82 b (41%YOY)
Earnings:    $10.67    (51%YOY)
iPhone unit sales: 25.5m (49%YOY)
iPod unit sales:   6.0m  (-9%YOY)
Mac unit sales:   5.25m (7%YOY)
iPad unit sales:  21.5m (93%YOY)
GM%: 42.25%

What I care about is that Apple keeps growing, and by growing, I mean growing their installed user base.  I'm talking about getting people (like me) hooked on the cloud.  Why do I say "like me?" Because I'm just a regular old Joe.  I wouldn't consider myself a fanboy.  I just like stuff that works and makes my life easier.  I like being able to take a picture with my iPhone, then the next day, while using my iPad in a meeting, I can show a colleague the picture on my iPad, and I never even gave one thought to syncing.  I'm taking meeting notes on my iPad, and later on I'm out in the field, and I can quickly reference my notes (any note) on my iPhone if needed.. again, no syncing - it's just there.  Yes - I love it.

Not many people read this blog, but a few people do, especially around earnings time. I average about 1,000 hits a month, and that doubles around earnings time. Investor's are hungry for information. Whoever you are, thanks for stopping by, you make me feel relevant.

Investors want to know what Apple will report on earnings day, enough so that they even come over to my little corner of the internet.  This is kinda like my little front yard that I keep manicured, just my little plot of land that I'm responsible for.  One of the reasons that I do this is literally because I'm trying to prove that a layman like me can come closer to the numbers than wall street can.  Also by participating, and actually publishing my predictions, it forces me to become something of an Apple expert. This summer, my friends and family were asking me questions like:

When will the next iPhone come out?
Is there going to be a smaller iPad?
How does iCloud work?

Asking moi?
Like I am an expert!  I'm not.  I'm merely a person that is very informed because my entire investment portfolio is 80% Apple.

No one ever asks me how many iPhones Apple sold.
No one ever asks me what the EPS will be
No one ever asks me how much revenue Apple will generate in Q4.

What's my point?  Regular people just do not care about the financials until Apple hits a milestone like 500/share and it's all over the news.. Then everybody at work is talking about it.  The common phrase I hear is - Apple's at 500 a share!  I wish I owned the stock!  It's too late now!  I wonder how my 401k is doing?  Believe me when I say that I am grinning ear to ear when I hear these conversations knowing that I originally got in at 44 share.  Do I brag?  Sometimes..  not much anymore - no one cares really. Am I bragging now?  Hell yes!  I hope you own Apple too.  Yes the price has dropped 70 pts lately.  But like my good friend Robert Leitao says:  "It's earnings that drives the share price"  Yes it's tough to take these 70 point drops when I'm 80% invested, but I have to remember that 1 year ago,  October 10, 2011, sitting on 379/share, I was dreaming about 650 / share, and here we are at 640.  65 points down from the all time high, holding a 15 PE.. Amazing.

With the iPhone 5 launched,
The rumored iPad mini on the way (I believe this is true),
An earnings call in 2 weeks,
The Holiday quarter coming up,
China and the rest of the BRIC's yet to be conquered,
and Android market share to grab,

There is just no way that I'm getting out.  Unless Europe  does totally collapse or someone nukes their neighbor... Oh, and let's not forget the US' fiscal cliff.  If I have to, it's 2 quick trades and I'm on the sidelines, and you know how fast that can be done.

Back to the numbers (now that I've finished my diatribe)

Revenues:  $39.82 b (41%YOY)
Last years Q4 was a huge disapointment to the world, yet it was 39% growth.  My call is the same percentage growth, but this time the shock will be muted because the expectations are not as high.
Earnings:    $10.67    (51%YOY)
Last year was 52% growth and again a huge shocker to the world - The sky was falling!  Yet here we are 1 year later, 250 points or so higher. The world doesn't feel better, but I do.
iPhone unit sales: 25.5m (49%YOY)
Last's years growth was 21%.  I'm doubling up to 49% growth based on last years number being so low, and this year's sales positively affected by the launch of the "5" in September.
iPod unit sales:   6.0m  (-9%YOY)
Sticking with my slow decline due to cannibalization. The iPod's are now the greatest and most coveted gift for a child for the holidays.. We will get back to the 15 million range for Q1.
Mac unit sales:   5.25m (7%YOY)
Even with iPads cannibalizing Mac sales, we still see 7% growth.  Mac grew 26% last year, but only 2% YOY last quarter, I'm bumping it up to 7% growth based on back to school sales, with the cannibalization factored in.
iPad unit sales:  21.5m (93%YOY)
This amazing device is continuing the explosive growth. Last Q4 was 171% growth YOY.  We will stay in the 100% range of growth through 2013 in my opinion..  Yes thats right, I'm calling this one right now.  Next year, Q4 iPads will be 40 million sold.
GM%: 42.25%
Same as last quarter and a little higher than last year..  The margins were higher earlier in the Fiscal year, but with all of the re-tooling for the iPhone 5, and the alleged start up manufacturing of the mini, the margins will stay in the 42% range.

If my numbers seem a little more conservative than usual, it's because they are.  I have been too high on my last few quarters, and I'm trying to tone it down a little..  This really is not easy, but it's fun trying. Hopefully one of these days, I'll nail the darn thing.

Last but not least, I reiterate my $910 one year price target that I published on August 19th, 2012. (For September 1, 2013.

Thanks for checking out my tiny little corner of the internet.

Dennis Hildebrand - Still long AAPL


  1. Your are relevant, Dennis. Thanks for sharing your thoughts on Apple. Do keep on. And you'll continue to be read in Copenhagen :)

  2. There was the usual report from research on PC sales (IDC) that says that Apple's sales have dropped 7% yoy. I am not willing to trust this, but I would not be surprised if people are waiting for the 13 inch MacBook Pro, because of cost. The iPad is also cutting into sales. My business partner bought an iPad instead of upgrading his out of date MacBook. Also solid state disks offer a reasonably priced upgrade path for 2 or 3 year old laptops.

    I think flat growth would not be an unreasonable target for Macs. This is a pure WAG so take it with a grain of salt. GM probably affects bottom line more than Mac Sales at this time.

    I would not be surprised if they passed the 40 B mark in gross sales this quarter. Some of Steve's hostility toward accounting actually showing earnings is probably shaking out with the change over to Tim Cooks management style. Again this is a WAG.

  3. Thanks Anonymous. I appreciate your comment..

    Ptmmac - I agree with your comments, especially with regards to Tim Cook's management style.. I believe that he is a boon to Apple's financials, and the overall growth.. It remains to be seen how the creativity will be affected.

    I have to go out, I'll add more comments later about Mac's and such.

  4. Ptmmac - I believe that as the Apple customer base grows, and grows...that the average customer gets smarter, and more in tune to the product cycles because of all the publicity the the company generates. That's why the product launches are so dicey, and it makes the revenue and earnings susceptible to huge swings.. Even with that said, I don't think that Apple loses sales, sales are delayed, but not lost. People really do wait for the new product to launch. I agree about the slowdown in Mac sales for all the reasons mentioned, but I'm not willing to project flatlining yet. However my 7% growth is heavily weighted on school sales.

  5. Hi Dennis, I began using Apple products 25 years ago and about the time Gil Amelio was about to take the company down, I bought my first shares. Since then I went into option trading, primarily Apple options. I have done extremely well and your column is the one I look for prior to each earnings release. You are definitely relevant to me. Thanks for your insights.

  6. Frank,

    WAY TO GO! Sticking with AAPL for 25 years..... Nice job. I'm curious; Do your family and friends know how invested you are in Apple? I mean immediate family like Sister, brother, mom dad, aunt uncle. If so, how do they react to your AAPL strategy? Do they look at you as an investing guru? Do you get bombarded with questions, or do you keep it all under wraps? just curious, thanks for your nice comment.

    1. Hi Dennis, Well my whole family has been converted. My mom began using Macs with the Lisa when she worked in a parochial school as the secretary. She is now 90 years old in a very comfortable nursing home financed entirely through her Apple stock portfolio. Two sisters are now Mac fanatics, and I believe it was the move into smart phones that brought one of them in. What's more, I am also a pastor of two different churches. All our members hear sermons like "Life: There's An App for That" where the iphone is featured. In fact during one message called "Can You Hear Me?" I instructed the sound booth to call me on my iphone as I had a conversation with God. So needless to say, everyone knows my position. I like to remind my congregations that the Lord pays my salary via option trading so none of their tithes are used. In my version of the Bible, it was definitely an Apple that was in the center of the garden of Eden. - Frank

  7. Dennis,

    This is Copenhagen (and Simon) again. I was wondering: How do you handle the downturns of AAPL? Like the present one, from 700+ to maybe below 600 on Monday. Do you trade the movements, or are you able to keep your cool? And if the latter, what helps you kepp calm: Your spreadsheets, your faith, ...?
    All the best from Copenhagen & Simon.

  8. Copenhagen,

    I've been asked that question a lot lately, in particular a curios reporter from Fortune magazine.. I don't think I responded very well to his questions because AAPL was in the midst of one of its 20 pt daily dives... I have played the time the market game on one of these pull back occasions and really didn't gain much. So in answer to your question, I'll say that I handle it with angst on top of an over riding confidence that the fundamentals will prevail. This pullback has really bothered me probably because even though the percentage pullback is the same, the dollar value is off the charts because the share price is so high. In all honesty, it a tough row to hoe, and I cant wait for the mini to release, and also a strong earnings report to send the price upwards again.

    1. Hi Dennis,

      How are you feeling lately? I gotta think we're due for a rebound soon. But I worry that Apple's weak guidance for January could keep people bearish for a while.


  9. This has been agonizing. If we haven't hit bottom yet, I think it will happen at 525.45. I got out just below 600, I'll most likely go all in Monday depending on how the open goes. I think china will be the catalyst back up.

  10. Hey Dennis, first time on your blog. I have a blog myself and just completed a post on Apple. Here it is:

    I think you'll make out well in apple this year. It's hard to resist the company at it's current price. cheers.