Apple Earnings: Evaluating my performance

As chronicled here, this quarter I went through three sets of estimates. This is a departure from my standard practice of sticking with one forecast made three months in advance. I felt last quarter was filled with materially important developments which deserved updating.

So how did I do?

I wanted to see if the additional information helped or hindered predictability so I put my three predictions side-by-side and measured the errors. I also added the “legal leak” from April 15th (published April 19th) to see whether it was an accurate predictor. The table below shows the error rates with the lowest error highlighted.

It’s clear that my error rate decreased as new information was used. It’s also clear that the “legal leak” was very accurate. What follows is a discussion of each line item.

The iPhone forecast was very accurate both early and late in the quarter. At 1.36% error it was even lower than what was leaked by Apple. I used the information about China and Verizon to boost sell-in and increased the growth rate to 110%. That proved to be the right call. I did not pay any attention to talk of component shortages as I did not consider them to affect Apple whose market share of devices is so low. I would score my “late” estimate as an “A”.

Even though I disclaimed it, my iPad forecast was very inaccurate. In contrast, the leak was very accurate. Although mitigated by the higher sell-through (5.1 million) shipments were constrained by the change in product. Details like the date of shipment, the date of announcement and the ramps made this a particularly difficult transition to predict. At 36% error, I score it as an “F”.

The iPod error was about 10%. That’s mediocre. The product dropped in sales by 17% (vs. 10% expected). Again, the mitigating factors, like higher mix of iPod touch and thus increased prices helped to keep the financial performance decent. I score this as a B-.

The Mac prediction was accurate. The error was less than 5%. I will discuss the Mac business in a separate posting but it suffices to say that the growth was excellent but predictable. I score my prediction as an “A-“.

Revenues were reasonably predictable however pricing seems to have been affected by exchange rate volatility. The iPhone turned out to have a huge average selling price ($660) which made up for the lower revenues from iPad. The error of 3.25% is acceptable. I score it as an “A”.

The Earnings number was very accurate. The error for the late estimate was less than one half of one percent. This bottom line number is a function of all the other numbers so it’s the most encompassing. You have to account for factors like interest income, changes in the number of outstanding shares and tax rates. None of these are predictable. However, I was lucky. With an error below 1%, I rate this as an “A+”.

My overall performance as a grade point average would be 3.43 or B.

  • Shash

    fantastic performance horace. can you synthesize the reasons for the drop in the i-pad numbers?

  • Fred boston

    I modeled the iPad seasonal drop against the iPod drop rate and this worked well. iPad was a big holiday puchase and with both channel bleed and deferred purchasing makes a 50% drop a good guess. Then, add back new sales depending on how long the new model lives and I added in 1 million units. Worked this time anyway.

  • Chris

    Horace, in the land of the blind the one eyed man is king. You got a B, but this is graded on a curve. All of Wall St got an F so your report card will show A.

  • Pekka

    Good job Horace!

  • Samir Pinto

    Well I think you get a AAA

    • Anon

      "outlook positive"

  • greg

    Horace, I think we can view the ipad sales as an anomaly this quarter as no one was even close, so we should not apply a grading this semester. This bumps you up to an A. Keep up the good work.

  • asymco

    To clarify the scoring: An error of <5% is an A, <10% a B, <20% C and <30% D. F is anything over 30% and anything less than 1% is an A+.

    For those not familiar with the US school grade system, the grades and points associated with them are:

    A+ = 5
    A = 4
    B = 3
    C= 2

    A grade point average of 4 would imply "straight A"s.

    • Steven Noyes

      No TV for you young man until we see you improve that F on your report card. Now up to your room;-)

    • gslusher

      Sometimes, it's different. When I went to MIT (1965-1971), there was no A+. It was:

      A = 5
      B = 4
      C = 3
      D = 1
      F = 0

      I ended up with a 4.91 as an undergrad, 5.0 in graduate school (MS and Mechanical Engineer degrees–the latter was like a PhD without dissertation), total about 4.94. MIT also counted the credits for courses differently.

  • AAPLied science

    big A from me too , Horace. You're doing amazing work.

  • As always, impressed with both your pre- and post-call analysis. One general question I have is the iPad numbers. I understand the reasons for why they turned out they way they did. But everyone seems to have been way off on these to the point where I have to ask about the basis of the estimates. I had been assuming that estimates were based on something concrete, like the number of screens ordered or amount of flash memory shipped, or other things like that. Or were they just an educated guess of what a reasonable growth rate for this new product would be without really knowing anything substantial? I am really not trying to disparage anyone's estimates, simply trying to understand why they seem to have been so uniformly off. I am also well aware this is a new product category, making it doubly hard. Thanks for any insight you can provide.

  • Kizedek

    good job, Horace! Just curious, why was your mid iPhone estimate so much worse than the early and late one? Did you figure in some new info for the mid, but then discount it in your late estimate and go back to your early estimate?

    • greg

      I believe he answers that in his April 18th column showing his revisions.

  • Horace – your ASP numbers are off. Apple has typically not included ASPs in their published numbers but has given them on earnings calls. Yesterday they said they'd no longer provide formal ASP numbers.

    Looking at past numbers, though, formal ASP is usually about 96-98% of calculated ASP (revenues / devices) for iPhone and 94-96% for iPad. So that would give $640 or so for iPhone (a nice increase from $625) and $574 for iPad (a susbtantial drop from $600). In the case of the iPad I'm guessing that's down to substantial sales of iPad 1s at the reduced price.

    • The difference between calculated and reported ASPs being accessories etc. as pointed out by Tim Cook on the call yesterday.

  • davel

    I agree.

    Not many will stand up and grade themselves in public like this.

    Kudos to you.

  • Could it be that Apple failed at their own goals for iPad? I believe they are not happy at all about the lines in front of stores every day. Imagine if they could sell everyone an iPad. I would grade apple an F in that respect.
    And can you believe they have 1.5 million iPads "in shipment" at all times? Or was it iPhones?

  • Plist

    Props on the fortune article Horace. Among analysts, you are a breath of fresh air. One might even say, Disruptive.

  • I rate Asymco a "Strong Buy."

  • asymco

    Here are the answers:
    1. There was no specific new information between Mid and Late but there was a realization that Verizon was likely to have been more of a factor in the sell-in for Apple. There was information about the lack of store traffic but that I felt was a red herring. There were also mid-period noises about production impacts from Japan. I began to think they also were unwarranted as time passed.

    2. The company was much more profitable with the iPhone. This was a surprise. The reason is that the price of the iPhone went up (due to two factors: exchange rate for the dollar and likely higher price for Verizon's CDMA phone). The iPad does not have as much impact on the EPS as the iPhone because of lower volumes and lower margins.

    I was lucky because the shortfall in iPad was offset by massive profitability on the iPhone.

    • Iosweeky

      Re: point 2 – the ASP of the verizon iPhone was obviously higher than AT&T, as the cheaper iPhone 3GS is not offered in CDMA variety.

  • Suddy

    Hi Horace,

    Thanks and that makes sense. I too thought the lack of lines in the VZ stores was a non issue as there are more than 10K + retail outlets selling VZ plans, as opposed to few hundred Apple retail outlets that carry the iPads. So the lines are not going to be the same.

    I would like to pick your brain on two topics that I find very fascinating that you mentioned in your earlier blog posts.

    1. What are your thoughts on the iPhone 5 launch, and when AAPL will release the next gen iPhone? Personally I think that AAPL wants to give VZ users 12 months before launching the next iPhone. This will have the effect of maximum eligible non iphone users to switch over to the iPhone. your thoughts?
    If they launch in June, most VZ iphone users would have signed up for just a few months and already their phones are outdated.

    2. Pattern Recognition. I notice that you mention that in in post somewhere here and also in the blog you wrote about your speech in HK talking about where the next disruptions would come from. I am relatively new to your blog posts, and have not read all your posts. But if you have not, can you do a detailed writeup i a dedicated blog about the "pattern recognition" that you mention around business models and strategy.

    Would love to get your take and perspective.


    • asymco

      I believe that the iPhone 5 will launch a bit out of phase from previous launch cycles. I believe it will not be a completely new design and will be rather like the 3GS was to the 3G. The emphasis may be on speed increase rather than giant leaps in experience. The reason is that the product is pretty good, it just needs to be distributed more widely.

      I also believe that the product is due for a major reset next year. By this I mean a re-positioning in the market where it will be made accessible by a larger population of buyers. The reasoning is that 5 years is about long enough for the first basis of competition of iPhone. Thereafter it needs to compete on a new basis.

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