Estimates for Apple's third fiscal quarter (ending June)

Apple’s CFO guidance statement:

We expect revenue to be about $23 billion compared to $15.7 billion in the June quarter last year. We expect gross margin to be about 38%, reflecting approximately $55 million related to stock-based compensation expense. We expect OpEx to be about $2.5 billion, including about $255 million related to stock-based compensation expense. We expect OI&E to be about $70 million and we expect the tax rate to be about 25%. We are targeting EPS of about $5.03.

Apple Management Discusses Q2 2011 Results – Earnings Call Transcript – Seeking Alpha

Last quarter Apple guided revenue growth at an aggressive 63% with an EPS growth of 47%. They delivered 83% and 93% respectively.

They are now guiding about 47% revenue growth and 43% EPS growth and my current estimates are 65% and 72% respectively based on the following:

  • iPhone units: 14.7 million (75%)
  • Macs: 4.3 million (25%)
  • iPads: 9.8 million (200%)
  • iPods: 8.0 million (-15%)
  • Music (incl. app) rev. growth: 25%
  • Peripherals rev. growth: 25%
  • Software rev. growth: 25%
  • Total sales: $25.8 billion (65%)
  • GM: 38.5%
  • EPS: $6.02 (72%)

The biggest uncertainty remains iPad growth. This will be the first quarter where we can dial in a y/y growth rate. I’m being bullish with 200% because I believe the ramp for the iPad 2 may get sorted out. There are also more countries being opened up this quarter (13 this week).

Apple’s stock price to earnings ratio has dropped to 16.72. Ex-cash it’s 13.5. On a forward basis (my estimates) it’s 8.3. Apple’s valuation is now a case for business historians to discuss because I don’t think there are modern precedents.


  • Federico

    iCal this. You are wrong about iPad. They will sell at least 12 million. My estimates are 14 million iPads. Eps at $7.

    • asymco

      I would not be surprised if your estimate was closer to mine. I will be watching for signs of where iPad is going to be.

      • addicted

        Horace, if an order is placed in FYQ2, but delivered in FYQ3, would you know which Quarter the sales are counted in?


      • Halex_Pereira

        I think it's what they call backlog.
        4.69 million iPads were sold in Q2, but I remember something like 5.1 million "sell through" being mentioned — probably the cases you are talking about.

      • asymco

        I believe revenue must be booked when the product is shipped.

      • KenC

        Your credit card is not charged until shipped. Likewise, an order is not counted until it ships. So, yes, you should expect some of that backlog that developed in FYQ2 to be alleviated in FYQ3, as shipping delays seem to have gotten shorter.

    • Ted_T

      I have a feeling you are estimating the wrong thing. The key word in your post is "sell". The issue however isn't whether Apple can sell 12~14 million iPads. The issue is if Apple can *make* 12~14 iPads. And I think the answer there is no. I think that Horace's prediction is more realistic for that reason.

      It remains be seen how long it takes Apple to catch up iPad supply with demand. I seriously doubt it will happen this quarter. It may not happen until calendar 2012.

      I'm not even convinced Apple has caught up with iPhone 4 demand. Have they removed restrictions on number of iPhones per buyer at their Chinese based Apple Stores and are those stores fully stocked with all iPhone models?

  • moctavio

    Something similar happened to Intel in 93-94. Earnings were growing 15% quarter to quarter and the price of the stock would not move, with a P/E below 10. I think it was '95 that the stock rose 50%.

  • Unfortunately for Apple and its shareholders, we are up against so called ‘investment professionals’ such as this guy:

    “They are going to have comparison issues on the growth side,” said Michael Walker, portfolio manager at WP Stewart, according to the report. “They can’t grow 83% forever. There’s no way.”

    • Walt French

      No, Mr. Walker is willing to sell you the stock at the bargain price of today. Let him keep talking — encourage him, even — while you gather your pennies. Sooner or later, say, when Apple EPS gets to $100/year, the nay-sayers will capitulate and the price might nudge up. Meanwhile, you will have been accumulating dirt-cheap shares.

      Some of us who are in awe of Apple's prowess are nonetheless reminded that Apple has essentially created 3 grand slam homers in its last 3 at-bats. While I look at the inner workings and see a monomaniacal emphasis on huge, transformative hits, there is still the reality that other offerings — MobileMe, AppleTV and productivity apps come to mind — have been starved of the love that I believe could have made them palpable hits, too.

      Not everything the firm touches turns to gold.

      • addicted

        "Not everything the firm touches turns to gold."

        Good point. Selection bias means that largely everything Apple sells today, looks really successful, making us forget the failures. This makes it seem like Apple has only seen success, and make people wonder when their luck will run out.

        As a reminder, here are some of the big failures Apple has had: (1) The Apple Boombox (2) The Motorola Rokr (3) The original Apple TV (4) Ping, etc…

        It seems to me that Apple is really good at realizing when they have a poor product, and cutting their losses.

      • asymco

        Failures are important. They make good lessons if you are willing to listen.

      • Mark Newton

        There's a huge difference between 'really successful', not successful and 'big failure'. I'd say the former group would include iPod, iTunes, iPhone and iPad; the middle group would include the Boombox, Rokr and Ping; the latter group would include the Zune, the Kin, and perhaps soon the PlayBook.

        I would agree with @addicted – the difference is knowing when to cut your losses.

        I haven't categorized AppleTV above because: Apple hasn't yet cut its losses on it; (in my view) this little hobby will reach 'really successful' status in the not too distant future.

      • Hamranhansenhansen

        I think mainly they are good at not releasing failures in the first place. If it isn't working, they will shelve, not ship. And they are good at prototyping, building a functioning product early and developing it internally so their 1.0 is more like a 3.0 from other companies.

        I don't think the products you cite were failures. They are all deliberate experiments, aka "hobbies." The iPod hi-fi inspired hundreds of copycat products and spread the iPod dock all around; the ROKR they specifically said was to dip a toe in carrier waters, and they found they did not like it, and went a very different way with iPhone; the original Apple TV led to the new Apple TV, which is a hit, and with AirPlay is probably the ultimate iPad/iPhone/iPod accessory; and Ping was "Facebook integration with iTunes" but Facebook pulled out at the last minute. And those products are all accessories, anyway. Not core products. Even Apple TV is more like AirPort Express than a Mac.

      • Spacepower

        Many people would have bought an iPod hi-fi if they only offered it in black. The quality was better than Bose. Why could consumers get the iPod mini in various colors but not the expensive iPod hi-fi is something that I will never understand. At least give us black to match the rest of our gear.

  • Rob Scott

    I think your iPhone numbers are low, 16 million is the number I will go for and your iPad numbers are too high 7.5 is more or less the number. Everything else looks fine.
    Apple hasn't got the demand and supply of the iPhone correct. They are running the iPhone business too tight there is sill a lot of upside especially if they were to lower their efficiency rates just a little.

    • addicted

      I am not sure about the iPhone numbers. The problem is that this is one of the weakest iPhone quarters, since people are expecting a new model.

  • timnash

    iPod numbers, although pretty immaterial for revenue/ earnings, look too high. Should be similar to last quarter's 9 million. Problem is the nano needs a redesign, see my article

    For Macs to hit your numbers, we will need a desktop redesign this quarter. As Apple will want to take full advantage of the exclusivity with Thunderbolt, this looks likely.

    iPhone numbers look low, as it has only just reached supply/demand balance and having to wait to buy often stops people from buying. Verizon will be selling for 13 weeks (last quarter 8). Korea has potential too with SK Telecom (the largest carrier) selling the iPhone4 since march 16, but this may be affected by the back and forth with Samsung.

    • Hamranhansenhansen

      iMacs with Sandy Bridge and Thunderbolt are coming any day now, then Airs and Mac Pro in June, probably running Lion. I think Lion will drive a lot of sales for PC users with iPads and iPhones.

  • r.d

    White iPhone is coming.

    No one at conference call asked about the affect of Mac App Store. what was its #.

    Oil price effect.

    Education will be buying more ipad than macs.

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  • Steve Weller

    We're seeing an interesting psychological effect here. Apple's growth and success is so large and so surprising that most people (and certainly all "normal" analysts") are incapable of imagining it. It's not that further staggering growth is impossible or eve unreasonable; it's simply unimaginable. So they work very hard to justify their beliefs by filtering and interpreting the information accordingly.

    • addicted


      I, unfortunately, fall into the same category. I see the numbers, and rationally, it looks like Apple has a ton of upside. But emotionally, its just hard for me to imagine any company doing what Apple will be doing, if those realistic numbers do indeed come true. And its harder still to imagine APPLE, which was pretty much dead a little more than a decade ago, doing those things.

      • Hamranhansenhansen

        They were almost dead a decade ago, but they owned incredible technologies: the Classic Mac and NeXT, from which Windows was copied, and NeXT is where the Web started; Newton, from which PDA's and smartphones descend; the QuickTime authoring platform, key to digital audio video. That's all the cool stuff in computing up until that point. Everything else was DOS. And then, Apple spent 5 years from 1996-2001 iterating on all that stuff and creating the only true 21st century computing platform. That involved a lot of software work that can't be rushed and which will take competitors 5 years to match, and most have not even started, even now. That is why none of Apple's competitors can touch them. There is no music player, phone, tablet, or high-end PC that is even close to touching Apple. There is a huge vacuum in software. So nobody is eating Apple's lunch any time soon.

        And Apple still has markets to expand to. iPhone is only available to like 35% of the phone market. iPad is in very few countries. When they uncouple iOS from iTunes on Mac/PC they can sell better Ken markets where people don't typically have a PC.

        Another key thing is that manufacturing is all outsourced now. Next year, 100% of the world's tablets will be produced by a core group of manufacturers that doesn't care if they are making 25% iPads or 90% iPads as long as somebody is paying.

        And if you lump all iOS devices together as iPods, you see 10 years of consistent growth. There's no reason to expect it to slow now. It seems to have more potential than ever because it's a broader lineup and it has native C apps you can't get anywhere else.

        Finally, remember that in the 90's, nobody had seen anything like what Microsoft did before. And Microsoft had just picked up a baton that Apple-without-Jobs had dropped. It makes sense to see Apple continuing that growth now that they've taken back the leadership position in computing.

        So none of this is freaky growth.

  • Adam Thompson


    I respect your work infinitely. All the units look fine to me +/- a bit. The biggest issue, and it is one that you corrected in "late" estimates last Q, is your GM% estimate. On average for the last four quarters, Apple has beaten its GM% guidance by more than 200 bps yet you modeled a GM% beat of only 50 bps. For the last eight quarters Apple has never beaten its GM% guidance by less than 100 bps. I am in the same ball park as you on revenue but due to your low GM% guidance I think your EPS estimate is low by more than $.50.

    How do you come up with your GM% estimate? I just can't see any way to come close to your 38.5% estimate.

    • asymco

      My GM estimate is derived from bottom-up product-line estimates. I assign a GM to each product and the aggregate GM is in function of that and the units that ship. It's sensitive to every input.

  • Hizkyas

    I meant to write iPod instead of iPad at the beginning of Paragraph #3.

  • Adam thompson

    Horace, if your bottom up GM% estimate comes to a conclusion (38.5% GM) that is impossibly low based on actual historical performance is it possible that your individual product line GM percentages are off? Perhaps iPad GM% is 30% and you have it pegged at some lower percentage? With 38.0% guidance, actual GM% will in all likelihood be 40.0%+.

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  • Brian

    Apple guidance is below the current quarter's sales. iPad sales will be much higher than last quarter, Mac sales slightly higher, iPod will be flat. The only way their guidance that makes sense if they expect iPhone sales to fall. This would only happen if they announce a typical launch of their iPhone in late June. Therefore, I do expect to see the next iPhone in June.

    • r.d

      Problem with that is that iOS 5 has not been announced
      like in the past. Lion is coming in June-Aug.
      A5 might need process shrinking to fit iPhone.
      Apple is bring white iPhone this week that would not
      be happening if new one was coming in June.
      World iPhone (qualcomm) also needs time to bake in the oven.
      If qualcomm chipset was ready then there would have been only one type
      of 3G iPad.

      Too many things point to Sept.

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  • Iphoned

    How do you get 8x forward PE? The trailing 12-mo earnings are around 21/share. You’d need to assume 90% continued growth to get to 8x. Possible, but aggressive.

  • davel

    You are very optimistic on the iPad number. Do you think they can ramp that high?

    I agree with the other poster, your ipod numbers seem high. they have been selling fewer music players each qtr. why do you think they will sell more q3 than q2?

  • asymco

    Regarding iPhones: next quarter will be a transition quarter. I am guessing that Apple will be ramping down the current phone and ramping up the next generation. This is similar to what happened with the iPad last quarter.

    Regarding the iPod, it's a seasonal business. I am assuming a y/y drop roughly inline with the last Q.

  • Barnevelder

    Horace, can I ask a meta-question: since the share price seems to disregard the underlying business performance, why do you and your many expert and knowledgable commenters spend such effort and care in predicting the next quarter's performance? You are clearly a superb analyst with the subtlest reasoning I have ever come across, but all your analysis seems to be wasted effort if the share price movements reflect something else entirely. Frustrating, or what?

    • asymco

      Markets are the multiplication of fundamental analysis with random numbers. It's not very interesting to try to predict markets and it's not what I try to do.

      I don't see it as wasted effort. Being able to see what is happening clearly gives comfort.

      • Barnevelder

        Extremely illuminating reply. Thank you.

    • I would assume a prediction of future performance is the logical way of testing theories and understanding of why the past quarter turned out the way it did. Inaccuracies point to calculations and analyses in need of improvement. So predictions and discrepancies compared to actual outcome help improve future analysis and lead to better insight into obscured factors and mechanisms.

  • chandra2


    >"On a forward basis (my estimates) it’s 8.3."

    Is this ex-cash? Can you give the breakdown on what earnings you are using and how much cash ( including what will be accumulated over the next 4 quarters ).


    • asymco

      I don't publish earnings beyond the next quarter as I have little confidence in them. I only put this multiple out for its amusement value.

  • iphoned

    Mathematically it would come out to about 8.5x forward PE ex-cash if you use 50% forward growth rate and subtract current ($65) and future ($35b or so) cash from the market cap.

  • chandra2

    With the current ttm earnings of $20.98 and an expectation of P/E "growing" to 18, Apple can be reasonably expected to trade at 377 in the next few weeks. And in anticipation of the next quarter announcement or soon after, to maintain that P/E of 18, the price has to move to 400-410. So that kind of a 15% return in the next three or so months is in the bag and beats any other investment now. So it should be treated as a screaming buy even by short term investors.

    • joey

      devil's advocate: did you notice how the stock went sideways during last quarter despite earnings being good in janurary? in effect, the PE went down and there was nothing anyone could do about it. will this repeating during subsequent quarters? possibly. should it? no..but, you can't control wall st.

      • chandra2

        Agreed you can not control wall street.. only our expectations 😉 There is only one certainty.. the Apple P/E will contract. But that does not mean price will not go up, but not at the same rate as the earnings growth.

        Apple stock price had some spectacular runs too. From late August to Mid Oct 2010, it went up from 240 to 320. The prior four months to that it was stuck in a trading range like it is now.

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