October 2010
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Day October 28, 2010

Turley Muller: Warranty Expense Crimps Apple's Margins in 4Q10

If estimated warranty expense had remained constant in absolute dollar terms ($150M), GM would have been 38.4% vs 36.9%. If If estimated warranty expense had remained constant in as a percentage of revenue (1%), GM would have been 130bps higher at 38.2%.

via Financial Alchemist: Warranty Expense Crimps Apple’s Margins in 4Q10.

Muller spots the culprit in the margin drop. He notes that this is money set aside and may have been in anticipation of returns of the iPhone 4 due to antennagate. Note how in 3Q cost of claims was 155 and accruals were 157, about a 1:1 ratio whereas in 4Q costs were 286 and accruals were 457 about 1:1.6.

It’s possible that if the costs this quarter do not materialize then we could see a margin upside surprise.

(Contrast this insight with today’s large scale sell-off in shares due to mass media repetition of earnings guidance from the conference call as shocking “news.” See also evidence of unlawful trading behavior here.)

LG continues to lose money in mobile phones

LG saw its profit fall apart today as its summer results were hurt by its weakness in phones. Its profit plunged 99 percent, down from $805.6 million a year ago to $6.7 million. The Korean company was dragged down by its mobile group, which had a record loss of $270 million. The company’s total phone shipments also dropped, going down 10 percent from year to year at 28.4 million.

via LG profit collapses based on shrinking phone sales | Electronista.

Q3 numbers show that LG had a drop in ASP as well. The unit numbers are down sequentially from 30.6 million in Q2.

Re-framing the dichotomies: Open/Closed vs. Integrated/Fragmented

Google likes to market itself as “Open” in contrast to “Closed” alternatives.

Apple likes to market itself as “Integrated” in contrast to “Fragmented” alternatives.

These dichotomies are judgmental and meant to portray “us=good” vs. “them=evil”. Neither gets to the point of how the two companies are structuring their businesses relative to the mobile computing value chains and clouds the judgement of observers.

I propose using a more informative and less judgmental distinction. It’s a division defined clearly by Clayton Christensen in his classic “The Innovator’s Solution” from 2003.

He introduced the concept of interdependent vs modular systems.

Motorola ships 3.8 million smartphones

Sales from its handset business climbed 20 percent to $2 billion last quarter, helping to narrow its loss to $43 million from $216 million a year earlier. The division had an operating profit, excluding some charges, of $3 million. Motorola said it shipped 3.8 million smartphones last quarter.

via Motorola Profit Tops Estimates on Rising Sales of Droid Phones – Bloomberg.

Motorola shipped a total of 9.1 million phones. This is down 33% from the year-ago quarter’s 13.6 million units but up 10% sequentially from 8.3 million last quarter.

I’ll summarize the top tier vendors’ unit volumes, sales value, price and profitability in a few days.