Estimates for Apple's first quarter earnings (January)

Oppenheimer on the concall:

We expect revenue to be about $23 billion compared to $15.7 billion in the December quarter last year. We expect gross margins to be about 36%. We expect OpEx to be about $2.325 billion.

We expect OI&E to be about $65 million. And we expect the tax rate to be about 25.5%. We’re targeting EPS of about $4.80.

Here are my expectations:

  • iPhone units:  16.2 million (85% growth)
  • Macs: 4.3 million (27% growth)
  • iPads: 6 million
  • iPods: 18.9 million (-10% growth)
  • Music growth: 20%
  • Peripherals growth: 28%
  • Software growth: 11%
  • Total sales: $25.5 billion (63%y/y growth)
  • GM: 37.5%
  • EPS: $5.86 (60% y/y growth)
  • RobScott

    Your iPad numbers look optimistic if only because its transition time to iPad 2, 4.5 – 5 million would be my range. iPhone numbers look amazing (and that is before Verizon). This thing is huge!
    With the new Airs, Macs should do better than that, 40-50% growth, I say.
    I see a bigger drop with iPods; the upgrades didn't do much to help last quarter.

    How much does Google do in a year (revenue)?

    • TomCF

      Google isn't the right company to look at for a good apples to robots revenue comparison. You'd need to look at the phone/pad revenues of Samsung et. al.

  • Rob Scott

    So Google makes almost the same amount of revenue as Apple makes from 1 product line: the iPhone?

    • The $250M was Android. Google at $1B/yr from Android shows how very LITTLE goog makes from mobile, outside of search/ads.

      • Stu

        No, the $250M was EVERYTHING except advertising.

        Think hosting. Think google checkout. Think corporate webapps. Think Postini. And Android.

        I wonder if Google literally makes more than $0.00 directly from Android. To them, it's just another advertising platform.

  • Joe_Winfield_IL

    Why the jump in music sales? I thought that number had peaked with the split pricing on iTunes. Also, I'm with @RobScott on Macs. The Air is shiny and new, and just in time for Christmas.

    • Marcos El Malo

      Christmas! Think of all those people with new iOS devices wanting to fill them with content. I can't say whether 20% is overly optimistic or under, but we will see some growth as more consumers pick up iOS devices.

    • CndnRschr

      But the MBA may cannibalize some MacBooks and MacBook Pros, not to mention some iPads. After all, it is meant to be built from the demon seeds of each… The margins on the MacBook Pros* are likely much better than the MBA so this could crimp GM. One thing in its favor in terms of margins is that a lot of people will upgrade to the 4Gb RAM versions (they should, its not user upgradable).

      *Especially the new one with the 2.8 GHz i7 chip.

      • Joe_Winfield_IL

        I agree that it will cannibalize MacBooks, but so what? As long as total sales volume increases dramatically, does it matter which MacBook family the purchase comes from? Revenue increase tied to higher unit output will handily offset any GM compression from the MBA. Also, the ASP will probably be pretty high when all is said and done, and margins go up very quickly on of all of Apple's products ($200 for an extra 64GB of flash!). Ultimately, there has to be some margin pressure as the PC camp is now putting out $400 full-featured notebooks. Netbooks killed the party for everybody else, so Apple is smart to feature the MBA for a starting price of $999. They justify their pricing through differentiation, and this certainly is different.

        Finally, if you read my comments on the "Back to the PC" thread, I believe Apple is deliberately trying to cannibalize the MacBook to push the envelope on HDD/Optical drive removal.

      • CndnRschr

        Yes, it does matter if the margins are different (as a percentage of the cost and in absolutes). Increasing sales to nullify the effect of selling more of a lower margin product (of course the margins will increase over time as component costs fall) works only when the net increase is bigger than the net decrease in per unit profits. I agree that Apple will release MacBooks/Pros that borrow from the technology in the MBA (instant-on, all flash memory, no optical drive) but the MBAs are nowhere near as hobbled as the first generation (now up to 4Gb RAM, 2 USB ports, high res screens, etc) and these will suck in more entry level buyers who'd otherwise have bought a $999 13" MacBook:
        Same RAM, same graphics, bigger HD, faster cpu but polycarb not unibody, bigger screen but essentially same pixels (1280x 800 in MB, 1366×768 in MBA) and double the weight.

        It will be interesting to see the effect over this quarter and others. The MBA may well pull in new buyers who'd considered a netbook since it has much better processing, screen and a full size keyboard.

        If you take out the iPhone/iPod devices, margins have been slipping but volumes have more than made up. However, cannibalization has been minimized. The MBA is really the new low end MacBook (which is quite a remarkable shift from the tax put on lightness in the original MBA).

      • Joe_Winfield_IL

        I believe that within the Apple product lineup, the MBA lines up against MB, MBP, and iPad. My immediate thought when I saw the specs was – maybe we should buy one of these instead of an iPad for the house. I think others will have the same thought, and it likely has a better GM for Apple.

        Either way, Apple is wise to cannibalize its own product line at the $1000 and up price point rather than introduce something to compete with ever cheaper laptops. They are further differentiating instead of dropping prices. Margin may suffer, but not in dramatic fashion. A fully loaded MBA will be almost $2k, and the specs suggest that Apple will make a fortune on these models. I firmly believe that Apple is the only computer maker left who is not afraid to make money on its products. I can't imagine that they are going razor thin on these, even at the entry level.

        Finally, I agree that it is a stunning shift from the pricing of the original MBA.

      • CndnRschr

        "I firmly believe that Apple is the only computer maker left who is not afraid to make money on its products." That's a classic 😉 Oh, Michael Dell where for art thou now.

        Agreed on the blurring between MBA and iPad. This provides up-sell opportunities. I've an iPad and an MBP and thought the same but the touch experience on the iPad really is what makes it such a desirable product. It's shocking that companies such as Sony assumed they could fool people into vertical touch. Microsoft realised that wasn't going to work when they launched their tablets. They seem to have forgotten those lessons though, in the superficial touch layers for Windows 7 which have been rejected by several OEMs.

      • TomCF

        The MacBook looks like it's going away, squeezed between the Air and the Pro. If you're not getting the Pro, why not get the Air? If you're not getting the Air, why not get the Pro? Portability vs. power. Simpler choice.

        It makes things just a bit more confusing for the consumer, and Apple doesn't like giving consumers tough choices.

        I don't think the MacBook will drop in price either, because that'll hit iPad territory, again muddying the waters.

        And Apple has never cared about cannibalizing its own sales. Yes, margins may differ by a bit, but the other choice would be to leave an opening for their competitors.

    • asymco

      "music" includes all ITunes, hence apps.

      • Joe_Winfield_IL

        OK, that makes sense then. At what point does the name need to change to reflect the diversified revenue stream through the iTunes store? I'd be curious to see a breakout of iTunes revenue to see how much is in fact "tunes," vs. movies, tv, books, apps. Does Apple make this available?

        BTW, congrats on your Deagol ranking and subsequent writeup in PED's column today. I could only see so many references to your work before jumping over to the Asymco site to get the analysis directly.

      • asymco

        The name is wrong, but Apple has not changed it. Accounting is a funny thing. They also don't break it down. Thanks.

  • daveadams

    I don't see how the iPad isn't a huge seller for Christmas, regardless of the threat of an impending iPad 2. 6 million is probably a conservative expectation.

    • Iosweekly

      I agree!

      Have all the analysts been burned by their estimates last quarter being hampered by production constraints? With production now ramped up to meet demand (see shipping times) combined with the holiday gift season, this should be 7 million easy.

      And the "transition" period between yearly updates isn't likely to happen until march, correct? (iPad announced in Jan, but didn't ship till march)

      Or is the $499 entry price to high for the mass market gifting segment, it's fine to splurge on yourself – but few have that budget to spend on one or more children and family members? Maybe that magic $299 mark that video game consoles normally explode at is the magic number. And the iPod touch and iPhone (subsidized) still fit under that.

      Damn, I think I just talked myself out of 7 million and back down to agree with horace…..I defer to you good sir.

  • Seems plausible.

    If they do $5.86 in Q1, that probably means $23 in FY'11, or PE of 13.5x (and $70b accumulated cash)

  • BTW. One thing I NEVER see anyone discuss ANYWHERE is how Apples free cash flow still consistently exceeds reported earnings. Adjusted free cash flow exceeded earnings this year by about 10%, which means Apple's real economic earnings are about 10% higher then actually reported.

    (By "Adjusted", I mean Adjusted for current-liability fluctuations, I.e. just the sum of NI + Depreciation/Amortization+Stock based comp+Deferred Rev. – CapEx. Adjusted FCF was $15b vs $14b reported earnings in FY'10. Note that the "Unadjusted" actual free-cash-flows were even higher – 16.5b, but it is the Adjusted number that I believe represents true economic earnings.)

  • unclear exactly. most likely, yes.

  • Sam Penrose

    I'm surprised your iPad number isn't higher, and your iPod number lower. I would be that many of last Q1's iPods were Touches purchased as gifts, and that many of those will become iPads. I would expect the iPad to increase more than that regardless due to supply coming online.

  • Niilo

    OK. I think 12 posts on Apple results is enough 🙂

    What about the Nokia numbers?

    • KRIS

      That is true (AAPL $500). Horace is prepairing the comparison charts between Apple (iPhone) and Nokia (excluding NSN), but he want's more data to it (RIM+others) 😉 We will again see his truly amazing chart art.

    • Iosweekly

      Well, if this were a site from a dedicated nokia analyst i would agree with you…..but since it's from an apple analyst, then 120 posts on apples earnings would be fine by me.

  • KRIS

    I am hit hard with the reality. (Q4 $22B prediction) If the LG can't do more and faster displays (iPad+) for the Apple and Samsung can't produce A4 packages faster and more then we have to wait another quarter for Apple to hit the $30B revenue "barrier". Honhai's investments take another year and Maiden is fully operational at the end of the year, so the Q1 (Q4) is going to be interesting. My prediction is still over 9 million iPads (did not happen in the last Q). I trust the Apple CEO+COO & CO when they say that they fixed the major problems in Semptember. Xmas is STELLAR for the Apple Incorporated. If the Q1 (Q4) "fails" much ("few Billions") under the $30B then the Q2 (Q1) is even more impressive. Buy the way or street… With $51B of cash the Apple will not buy "traditional companies"… THEY WILL BUY MORE SUPPLIES and of course you already know that Apple is a co-founder of the ARM holdings.

    • Niilo

      Actually 9 million and 1. I am going to buy one in the Jan, but I only just decided, so cannot yet be part of the estimate. Unless of course you are psychic.

      (Thank god it's friday…)

    • CndnRschr

      They bought into ARM (as a part of the Newton PDA project) for about $40 million and then sold most if not all of those shares when the times were very tough. John Sculley credits the $800 million proceeds from saving Apple from bankruptcy in the mid-90s.

  • KRIS

    iPhone units are btw going to be way over 20M. There is something that the Steve told.

  • KRIS

    As you noticed the window for the new products was this week (after the Q4 (Q3) results for the XMAS. Next window for the new products is 90 days from the XMAS. Apple will deliver added value (upgrades) in between and some "subrises" (Maiden), but not any major overhaul of the products before that. They may introduce something, but they will not deliver before April.

  • KRIS

    Got to love The Apple. The stamina and the level of focus is unbelievable. It really is the W16 engine and more. Steve could step down yesterday knowing that the company is ready for the future.

  • KRIS

    Damn… Major overhaul of the producs means hardware.. not the software!!.. Hardware production lines are now fixed for months to come. Software pipelines are the opposite of the "fear factor".

  • Iosweekly

    Where is the extra 100 million revenue from 1 million appletv unit sales included? Peripherals growth?

    Any contribution included from the first likely few days of stellar sales from the mac os app store? Or do you think this won't launch until January rather than late December?

    Software growth only 11%? why no bigger boost from ilife 11? And all those iWork iPad apps selling to those 6 million new ipad owners? Or are they included in the "music" growth? That seems increasingly more mislabelled each quarter if so.

    • asymco

      aTV is under peripherals. Peripherals has been growing 16.5% and 22%. I nudged it up to 28%. We might see more.

      On the software, same story, growth has been: 4.1%, 1.3%, 21.9% (iLife) and 2.0%. I put it at 10.9 for next Q. Note that 11 is cheaper than it used to be for upgrades.

      Still, plenty of potential upside here.

  • Iosweekly

    If apple unleashes an app store for appletv games, that could be the sneaky surprise Xmas gift hit this December. Maybe they are holding off releasing it for exactly that reason – maybe they fear it could decrease December demand for the iPad as a gift. Appletv games will be next years hot gift once iPad has firmly established itself.

    Appletv: $99.
    optional appletv game controllers $49 each, or use the $9.99 ios app on your iPod touch or iPhone.

    • KRIS

      I say $30B. You can short me $28B. The key word is STELLAR 😉

  • KRIS

    … You can short me at $28B.
    Apple has never had this strong portfolio. They rule the competition next 5 years and within this time they move on faster than the competition. AAPL $1000.

  • Jal

    Warranties are a small part. The big one – Stock options hit earnings but not cash flow.