Analyst production forecasts for iPhone and iPad

On the iPhone, the firm raised their production forecasts from 14 million units to 18+ million, aided by easing constraints of display panels. Checks show consistent shortage of iPhone 4 inventory at Apple stores and there continues to be a three-week shipping delay from Apple’s online store, the firm notes. As a result the firm has increased confidence in its 4QFY10 iPhone unit estimate of 11.6 million, which is up 39% sequentially.

On the iPad, the firm’s build forecasts were revised up from 6 million to 7 million, which compares to their iPad shipments estimate of 4.75 million. The firm believes [there] is upside to the Q4 estimates and CY10 estimates of 13.4 million units, given the strong demand and anticipated production ramp heading into the back-to school and holiday seasons, as well as the high level of interest from business customers as expressed by AT&T.

via – All Apple (AAPL) Products Lines are Humming Along – Analyst.

These sound reasonable and credible. Note that production forecasts don’t translate into sales forecasts as there is inventory, and some of that inventory will be held by Apple and some by the manufacturer.

My Q4 estimate sits at 12.1 million iPhones and 4 million iPads.

  • Lee Penick

    I find it an amazing feat that such a new product could sell as well as or better than the Mac. It took a lot of brain power to accomplish that.

    I'm enjoying your analytical skills very much. Curious, do you know if any CEO has lost as much market cap as Steve B.?

    • The share price increase only rewards *unforeseen* growth. If a company performs according to expectations its stock price should not move. Microsoft has been flat even though it has grown because none of its growth is unexpected. What a business leader needs to do is exceed what everyone expects. S. Ballmer is good at meeting expectations. He's thus damned with faint praise.

  • Lee Penick

    Good opening sentence! Are you saying the Value = the NPV of the future cash flows?

    If so, I won't argue with you, but will beg you to tell me Apples future cash flows for the next 20 years and the appropriate discount rate. In return, I will offer up my first born son to periodically mow your yard on frequent visits to your country of choice.

    I'm not aware that any analyst has crystal balls like that. (plural as I'm assuming one crystal ball per stock being followed)

    How do we apply that theory in practice? I don't see the professional analysts nor the independents making ventures very far into the future. And of course many make price targets but don't specify the time frame. (cracked ball I suppose)

    Isn't the NPV approach correct in theory, but better applied to other cash streams that are more definable and shorter duration?

    • JonathanU

      Absolutely. It is the eternal struggle for anybody interested in financial modelling and valuation. Anyone can build a pretty spreadsheet with all sorts of inputs and outputs, however, they always suffer from crap in, crap out.

      Forecasting AAPL's future free cash flow's and discounting them at an appropriate discount rate (using WACC, this would be essentially the cost of equity as the company has no debt; therefore CAPM gives you a discount rate of roughly 10% (this is very back of the envelope, I would say this could be slightly higher?)) is very tough indeed. You might be able to get 3 years worth of forecasts to some degree of accuracy, but the rest is a mystery, hence why most investment bankers then start making assumptions as to the long term growth of the business being inline with expected GDP growth etc. There isn't much more you can do really… it truly is a guessing game!

      However, so long as you err on the side of caution and model everything conservatively, then it is probably better than nothing at all…

    • To make money with stocks (beyond index fund growth) you need to take risks. The risk you should take is on companies that show an ability to surprise. I mean really surprise, as in "where did all that new money come from?" If you can predict accurately the so can everybody else. The kicker is that even the company's own management must be surprised. Not even they can tell what's coming. In Apple's case I'm pretty sure that iPod and iPad were all bigger than anyone there expected them to be. They created new markets. New markets can't be measured.

  • Lee Penick

    I think there is a lot of logic and value in what you are saying, but I'm not in complete agreement. Example, a simple model of Apple using your FY end, TTM earnings of $15.27, a P/E that makes the stock come out to recent levels…turns out to be about 17, then the 'big' assumption…I'l use 20% growth. (low by recent standards, unknown in the future and especially the out years)

    As you can see, this provides very good appreciation for the stock price, and I don't think the variables I've used are really over estimating the markets outlook for Apples future. But as a short term minded species, we don't seem to look much farther than the next quarter, or perhaps year.

    Personally I plan on needing money and successful investments beyond the time frame of one year, and like looking further out into the future. If Apple can do a fraction as well in the future as the current management team has done in the last few years, I don't think the market has properly discounted the future cash flows at all.

    I think Apple is significantly undervalued, and believe a P/E of 17 is undeservedly low based on the actual growth rate. I'm not sayng this to wine, I'm saying it as I appreciate the investment opportunity.

    Year growth rate EPS P/E ratio Share Price
    2010 20% 15.3 17 $260
    2011 20% 18.3 17 $312
    2012 20% 22.0 17 $374
    2013 20% 26.4 17 $449
    2014 20% 31.7 17 $539
    2015 20% 38.0 17 $647
    2016 20% 45.7 17 $776
    2017 20% 54.8 17 $931
    2018 20% 65.7 17 $1,118
    2019 20% 78.9 17 $1,341
    2020 20% 94.7 17 $1,609

    Factors I think the market may be missing/under valuing:

    The value of the Apple management team regarding innovativeness, design, production quality and efficiency.

    The value of Apple's brand and following.

    The value of the OS and it's scalability.

    The value of understanding customer needs and wants.

    The value of the profitable portion of the market.

    The size of the mobile internet vs. the size of the desktop PC market. (been estimated at 10x as large)

    The customers appreciation for design and quality once they experience it.

    The value of the "integrated whole" Apple provides that makes life easier for the average user who is not an IT major and doesn't want to spend their time trying to be one. (iTunes, iLife, better security and freedom from viruses, UI, apps, etc.)

    The value of the fundamental base Apple has laid in the past decade that can now be built on that is missing from other competitors operating model.

    I see these as tremendous assets, and having great value in the years to come, not only the next year. Things I disagree with:

    Apples lack of financial leverage.

    Not having a share buy back to support the share price and concentrate earnings.

    Holding too much cash at low interest rates, especially considering the current cash generation ability.

    Not offering a modest dividend to attract income oriented investors and funds, even though I do dislike double taxation.

  • Lee Penick

    Sorry about the spacing on the above table. My bad.