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Updated estimates for Apple's fourth quarter earnings

We expect revenue to be about $18 billion compared to $12.2 billion in the September quarter last year. We expect gross margins to be about 35%…

We are targeting EPS of about $3.44.

via Apple Inc. AAPL Q3 2010 Earnings Call Transcript.

I’ve updated my estimates from the July forecast as follows:

  • iPhone units: 12.2 13 million (65% 77% growth)
  • Macs: 4 million (30% growth)
  • iPads: 3.3 5 million
  • iPods: 9.4 9.7 million (-5% growth)
  • Music growth: 26.7% 25%
  • Peripherals growth: 21% 15%
  • Software growth: 8%
  • Total sales: $19.0 $20.5 billion (56% 69%y/y growth)
  • GM: 42.3% 40.4%
  • EPS: $4.78 $5.00 (73% 81% y/y growth)

The main news items that affected the changes in estimates were:

  1. iPhone continues to be supply constrained.
  2. iPad supply nearly matching demand though not yet rolled out in all markets
  3. new iPods look compelling though offset by back to school promos

Follow other estimates at Deagol’s site:
Deagol’s AAPL Model: Fiscal 4Q 2010 Final Estimates

  • Vikram

    I'm curious as to the iPad sales…when were they able to produce more than the 1M per month or so and what is that number now?

    I think that they have a real chance to hit $21B. $20+ Billion is absolutely incredible when you think were Apple was even 3 years ago.

    Look back 5 years and then when Jobs came back – has there ever been an company to grow as quickly has Apple has over the past 12 years? I'm not talking start-up, I mean a company that has been in business for around 20 years and then take-off as it has. I can't think of many off hand – Nokia may fit, which has had a long history. Wipro in India….some of these old emerging market conglomerates I suppose…

    …but Apple is certainly unique in how high it flew early on, then the near death experience it had and to be reborn again and fast becoming the most valuable company in the world. Has there ever been an arc like that?

  • Vertti

    IMHO the iPad and iPod figures are too low. Apple has increased the production for the iPad all the time and they sell extremely well. 9 Million is the figure that has stuck to my head. Maybe I am too positive. But propably the truth is somewhere between 6-9 million. That makes just 0,6-1,8 billion difference to revenue side if the ASP is $600. :D

    http://www.businessinsider.com/apple-is-making-2-

  • Fred Cormier

    How come the continued constrained supplies of iPhone isn't causing you to LOWER your estimates? I know people who have bought android devices because they became frustrated with the wait for the iPhone. I also wonder if more people shifted to the cheaper and a available 3GS and if this will lower the ASP? Constrained supply might not be positive if it shows that apple just couldn't produce this new design very quickly or if there was some other supply constraint or specific production difficulty.

    • Vertti

      I am confident that the iPhones production is well inline to meet the 13 million sold. The demand is just so well up, that they could sell another 13 million.

      • Vertti

        The Q) is now that how much over 20 Billion they make this Q4 (Q3).

    • http://www.asymco.com Horace Dediu

      iPhone production is better understood than iPad production. We know roughly how many iPhones can be built by Foxconn and we know that demand for it is far greater than supply. In addition global expansion for the 4th version is ramping faster than for any of the earlier versions. You have to appreciate the fact that Apple *knows* more about iPhone demand than iPad and likely has a far better control over production as a result. Having said that, the fact that we are so late in the launch and there are still low supplies means that it's running well above expectations. I am indexing my forecast on growth rate and at 77%, it's not a particularly large number vs. historical average.

  • Iphoned

    Horace – your q4 estimates seem to idicate a substantial margin expansion, which seems contrary to Apple's guidance based on higher costs of iPhone4 and lower iPad margins. Why?

    • http://www.asymco.com Horace Dediu

      Margins are notoriously difficult to predict. There are multiple forces in play: first, the ratio of very high margin iPhone as a percent of sales continues to increase. All else being equal, that alone would increase margins. The second counter-force is the increase in iPad which is lower margin (but we don't know what the final margin will settle at since it's still early in the product cycle–the iPhone was lower margin at the outset.)

      There are also the usual variables of component costs and foreign exchange but I think Apple hedges these very effectively.

      But to your point about margin contraction, take a look at the last few quarters' GMs:

      39.9% 40.9% 41.8% 40.9% 41.7% 39.1%

      Oppenheimer has pounded the table about margin compression for years. It never seems to materialize.

      The drop last Q was obviously due to the iPad and some iPhone launch effects. My forecast of a bump up to 40.4% is not out of line with the historic average.

      I build my model from the bottom up, meaning I estimate each product's GM individually and then the total GM is the weighted average of the product GMs. . I still expect I'm a bit too high overall on GM as I have been too high in the past, but I'm sticking with this for now.

  • Mark

    Thanks for the great blog. I'm an avid follower from the Philippines and your estimates is inline with what I've seen firsthand.

    The new iPhone and iPod touch are big hits here and it takes weeks to get one.

    The iPad is still not officially available but I'm hoping that will change in the near future.

    • http://www.asymco.com Horace Dediu

      Thanks for the data from the field. It's wonderful when the readers here can get samples of info from peers.

  • Alexkhan2000

    What Apple is accomplishing now (and has for the past decade) and will continue to achieve in the foreseeable future (next 2~3 years at the most since it's virtually impossible to see beyond such a timeframe in this industry) is really unprecedented. It is more impressive than what Microsoft did in their heydays of growth in the 80's and the 90's when you consider that Apple had to literally come back from the dead while Bill Gates essentially duped IBM into giving Microsoft monopoly control over the PC's OS. What Gates did was probably the greatest "swindle" in the history of business. Apple, meanwhile, had to slowly work their way out of the very deep hole that they dug themselves into under the lame leadership of Sculley, Spindler and Amelio in the 80's and 90's.

    Whatever happens 5~10 years (or longer) from now, what Apple is doing now will become the stuff of business legends and it seems we're far off from seeing the end of this run by this remarkable company and the CEO running it. Jobs and his top lieutenants seem to be seeing the battlefield (the market) from a 3D technicolor perspective from all angles while the competition is seeing it in two-dimensional black-and-white. Jobs is apparently seeing things that his competitors can't.

    I've noticed that about all great strategists (military leaders, politicians, and business leaders alike) of history. Vision (strategy at the grand macro level), tactics (strategy at the micro or mid-level), and flawless execution down to the lowest levels have to be in complete sync for an organization to be this successful against its competition and antagonists. Apple has made its share of minor missteps and will continue to do so, but that's another strength of Apple: they learn from their mistakes and adjust accordingly.

    It's quite a fascinating thing to observe. Something like what Apple is doing right now has never happened before and will probably not happen again in our lifetimes. Who knows what will happen in 5~10 years or if Jobs will even survive that long? It's all about the present and the near-term future now because that's all we can hope to speculate on. Watching it all unfold almost on a daily basis in real-time is unlike anything I've seen before. This is historic. This era of Apple's rebirth and unprecedented meteoric growth will be studied long, long into the future.

  • PatricK

    I have a hard time believing Apple was able to produce more than 10MM iPhones for sale this quarter. Anecdotal evidence is not seeing the penetration in the US of the iPhone 4 that I did with the 3G or 3GS; production hypothesis is that the white iPhone messed up their production cycle for the first month or two, resulting in a 30-40% drop in capacity. Maybe the international mix is different, with more emphasis on non-US sales, but that is the only way I can see them exceeding 10MM.

    On the iPad, I think your numbers are very low. I'm expecting more in the 6-7MM unit range, which should still be very conservative; they could have hit 8MM in a best-case scenario.

    Thanks for the hard work! We'll see next week…