Estimates for Apple's first fiscal 2012 quarter

As the chart below shows, the last quarter (third calendar, fourth fiscal 2011) was slow with only 52% earnings growth. The discussion centered on the (surprisingly) disruptive effect of the iPhone transition. Surprising since most analysts, myself included, were lulled into thinking that the portfolio of iPhones and their wider distribution would create a smoother sales pattern vis-a-vis the more cyclical pattern seen in the first three years of production.

The second quarter was surprisingly strong and the third was surprisingly weak. So how do we estimate the fourth?

We have the pent-up demand for the new iPhone, we have the dynamics of holiday spending and we have a question mark on pattern of growth for the iPad. I’ll discuss each assumption in turn:

The first assumption remains that iPhone growth is approximately 100% for the full year. Last calendar year there were 47.5 million iPhones sold. A 100% growth would imply about 95 million for this year. So far 56 million were sold. To reach a doubling then 39 million would need to ship in Q4.

Another approach is to look at quarterly growth rates. Thus far, we’ve had 113%, 142% and 21% for the first three quarters. To reach an average of 100% for the year then the fourth quarter would need about 120% or 36 million units.

36 to 39 million would be a good bounding range if there were no other mitigating factors. The information published so far shows no particular problems with either production or access to markets so I’m going to go with 35.7 million.

The second major assumption relates to the iPad. The iPad has been a challenge to predict since launch. Not only is it a new category but it comes with a different launch cycle than the iPhone and has significant constraints on production. There have been only two quarters where we could measure y/y growth: 182.8% in Q2 and 165.6% in Q3. I was initially tempted to dial in 150% for Q4 but the question of transition comes up. The first iPad model grew well into the holiday quarter but dropped dramatically into the first as it went through the transition to the iPad 2.

Are we going to see the transition effect earlier this year? I’m being cautious and suggesting only 100% iPad growth or 14.6 million units this quarter. This is still a very challenging product to forecast.

So here are my fourth calendar quarter forecasts (with y/y growth in parentheses):

  • iPhone units: 35.7 million (120%)
  • Macs: 5.2 million (27%)
  • iPads: 14.7 million (100%)
  • iPods: 13.6 million (-30%)
  • Music (incl. app) rev. growth: 22%
  • Peripherals rev. growth: 25%
  • Software rev. growth: 25%
  • Total revenues: $44.6 billion (growth: 67%)
  • GM: 42.0%
  • EPS: $12.3 (91%)

This earnings value would imply a trailing twelve months’ EPS of about 33.5. At $390/share the P/E would be 11.6. Cash and equivalents may increase to $90 billion.

  • Anonymous

    For your iPhone estimate, did you chose just below the 36-39 million range to be conservative or do you have a sense that it is on the low end or that they will have trouble making that level?

    • Being conservative.

      • Anonymous

        Horace – Thanks for sharing your work.  At $12.30/share and 940 million shares, you are expecting $11.5B in net income.  I realize that they are spending more on Cap Ex but why wouldn’t cash go up by at least $12-13B, putting them in the $93-94B in cash or nearly $100/share. You state “Cash and equivalents may increase to $90 billion”.  Crazy that $3-4B probably won’t matter in this case but was curious.  Also, do you have a view on what they should do with their cash.  I am a big proponent of a share repurchase as long as their expected growth rate in cash flow is at least double their P/E. I also think they should do a share split and institute a dividend. 

      • You’re right, cash should go up by quite a bit more than 8 to 10 billion. I just wanted to keep the argument easily defensible.  Cash use is a big topic. I used to think that they should spend it on CapEx but it’s just growing too fast to find anything to buy anymore.

  • Anonymous

    Horace, did you add any for the extra week?

    • My analysis is not based on the length of the quarter though that would be one of the factors that could push the estimate higher or lower. The bias, if I were to mention one, would be that the estimate is conservative.

  • Kristian

    “The last quarter  was slow with only 52% earnings growth.” Yes.. 52% earnings growth is by every standard actually VERY slow. 😀 This makes my day every time when I see it. 😀

  • Anonymous

    Horace, what is your assumed tax rate and number of shareholders?

    • Tax rate: 25%, Shares outstanding 940 million.

      (Also OI&E estimate is $95 million).

      • Anonymous

        We are amazingly close.  I have 5.3 million Macs, 9 million iPods, 15 million iPads.  I cut my revenue for iPhones by $25/unit (3GS), used 42% GM, tax rate of 23.5% and 950 million shares.  Total revenue $43.5 billion, EPS $12.13.

        Oppenheimer guided $37 billion.  I assume he is low by 15% giving $42,55 billion.

        All subject to change.

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  • Anonymous

    Interesting that music & apps, software and accessories grow slower (22%, 25% and 25%) than the slowest growing hardware category (macs at 27%), and much slower than the iOS categories.

    I figure they’re better correlated with install base, but the disconnect seems to tell us something about the types of buyers and how they’re engaging with their hardware.

  • “This earnings value would imply a trailing twelve months’ EPS of about 33.5. At $390/share the P/E would be 11.6. Cash and equivalents may increase to $90 billion.”
    P/E is likely to compress again, but as an upper bound…

     – price today = 390
     – P/E today = 14.12
     – Horace’s estimated TTM EPS when AAPL reports: $33.5
    $33.5 TTM EPS 
    @ a 14.12 P/E (again folks, upper bound, not expectation)
    = a $474 share price.

    That’s just 5 weeks away, mind you.

    • Applefan

      $474 without cash.  What’s the cash worth per share?

      $90B cash is about $85/share?  But it has to be discounted to reflect taxation and other reality based considerations.

      • It will be about $95/share. Taxation is not an issue as that amount is after income taxes are paid. The US (and I think only the US) has re-patriation taxes on cash earned outside the US. To avoid this cash earned off-shore is kept there.

      • Bailinnumberguy

        Cash is but one element of book value.  Trying to affix a per share price to Apple’s cash hoard in isolation from its full balance sheet is not an accurate valuation approach. 

      • Although book value is in function of more than case, in Apple’s case cash is predominant. Book value for Apple is currently $82.45/share. Cash and cash equivalents and and long-term securities are $86.8/share.

      • Anonymous

        They have about $81.5B cash w/ about 930M shares outstanding.

        Works out to $87.60 per share.

    • Guest

      AAPL’s PE tends to drop suddenly at each earnings announcement, and then trades fairly evenly until the next announcement. I measured the average drop in PE during the 1-2 days following each earnings for the last two years. It is roughly 17%, keeping in mind there is usually some pre-earnings appreciation so this is 17% drop from the day before earnings, not from the quarterly average. But the numbers are very consistent.

      If we take today’s PE and apply the same drop, the PE will move down to about 12.19. Using Horace’s trailing EPS prediction of 33.5, it is likely that the post-earnings price of AAPL will be roughly $395.

      Sadly, I do not see this pattern breaking any quarter soon, because of the global bear market forces as money flows out of the market or whatever reason du jour you want to use to explain the PE contraction. One possible reason for this effect to slow is the rising value of AAPL’s cash horde as a component of share price.

      • This is indeed a trend that I have noticed as well. But it is a bit risky relying on trends too much.

        1- People see trends and then play them, but this changes the trend. I seem to remember that some years ago the trend was to run up AFTER the announcement. Then it shifted to buy before – sell the news. Now it seems that the early buying is 3 weeks ahead of earnings instead of 2 weeks. 

        2- There is a strong sentiment that Apple is undervalued. People do not believe that it can continue to grow at this rate. At some point they will realize that it actually has been growing at this rate and the price is behind. It could happen any time.

        3- There is a lot of play by the macro economic news. If this should turn positive (Stabilization in Europe + improved jobs data here) then that would be a serious game changer. A lot of Apple’s “trades fairly evenly until the next announcement.” has to do with the market as a whole moving sideways.

        A positive change in macros would also synergize strongly with #2. 

        So these are uncertain times with a lot of complex factors.

      • Anonymous


        You have come up with an interesting observation which, if true. might have some predictive value.

        I therefore tested your results by using Yahoo’s daily adjusted closing prices since 21 Oct 2009 to 9 Dec, 2011, Horace’s Quarterly Trailing 12 Month PE data, plotted the resulting PE’s and checked these against your observations.

        I calculated the change in PE from the share price the day before earnings to the 2nd day after earnings.

        These are the results:

        1) Your finding that the average drop in PE was roughly 17% appears incorrect.

        The result I found was an average drop of 11.68% each quarter. My calculations are based on flat rather than compound rates i.e. total Quarterly drop of  105.16% over 9 Qtrs. A compound rate would arrive at a less that 11.68% average drop.

        2) You are incorrect to say it “then trades fairly evenly until the next announcement”  

        In fact the opposite is the case. This is very evident from the charts made from the above data which shows a very strong saw tooth effect i.e.a very sharp PE drop immediately after the announcement, followed by an increase in the PE over the three months leading to the next announcement.,  sometimes surpassing the previous PE.

        If you think about it if there were an average drop of 17% in the PE after each results announcement followed by the share price trading fairly evenly, the share price would have dropped to near zero by now! The same applies to lower average 11.68%

        3) Therefore using your methodology it is incorrect to say it  “is likely that the post-earnings price of AAPL will be roughly $395” 

        4) Also the chart shows a very distinct difference in PE compression in the first year (i.e Oct 2009 to Oct 2010) compared to the 2nd year (Oct 2010 to Oct. 2011)

        In the first year, during which there was a particularly strong saw tooth pattern, the PE dropped and recovered repeatedly consolidating sideways within a range of lows of 20.8 to 18.7 followed by highs between 23.3 and 24.0.

        In the second year there has been a distinct decline of PEs. with lower highs and lower lows, declining from a high PEs of 23 to 16.7 and low PEs from 18.9 to 13.3

        There have been two unusual events in this year which have affected the share price:

           * Firstly the near ten point reduction in Apple’s contribution to the Nasdaq index from around 20% to around 10% which led to the sell-off of many millions of  shares by Index Tracker funds, which badly affected the share price 

           * Secondly, for the first time in many years Apple missed the Analysts’ consensus earnings in the last quarter, again affecting the share price so that it tested the 200 DMA which has proved a strong support level for the past two years.

        As neither of the above two events are likely to affect the share price following the next earnings announcement the PE compression is likely to be significantly less than average.

        If the earnings results are as Horace predicts then the PE compression may reverse and the share price and PE climb significantly over the following three months.

  • Zzbar88

    at&t this week announced that they’ve sold 6mm smart phones in the first two months of the Q4. That means they will sell at lease 9mm smart phones this quarter of which 7mm will be iPhones (based on the past non-iphone smart phone data at at&t).  if Verizon and Sprint combined iPhone sales add up to 7mm (5mm verizon and 2mm Sprint) , we are talking about 14mm iPhones in US this quarter.  Apple’s US sales are proximately 40% of the total global sales, this would mean 14/0.4=35mm iPhones globally. if the mix is 35% US, 65% international, we could see 40mm iPhones this quarter!  

    • That’s a good way to check on the estimates.

    • Anonymous

      I think iphone growth is faster outside the US, especially in Asia, so the number might be closer to 40.

  • Bob L

    Do you expect the iPhone mix to have any measurable impact on the number (3GS, 4, 4S) ?

    • Anonymous

      I’ve been wondering the same.  According to DigiTimes (who has a woefully spotty track record)  Apple will make 2 million 3GS phones this quarter.  ASP will certainly be quite a bit lower, but what about margin?

      • My working estimate is that the older generation product(s) make up about 10% of sales until the 4S launch. Two million 3GS could make sense but there would be substantial additional iPhone 4 units.

      • kevin

        Those 3GS are being offset by the 64GB iPhone 4S. It’s the first time ever there is a $799 unsubsidized (or $399 subsidized) iPhone.  According to one survey (Consumer Intelligence Research Partners) covering launch through 11/10, 23% of iPhone 4S buyers in the US were getting this most expensive model.

      • My expectation: “The lowering of ASP with the 3GS may be offset by the additional high-end sales, especially early on” See:

      • Anonymous

        I agree that this was clearly the logic behind the timing of a 64GB model.    Still, my question is about margin.  Are the 3GS models still coming down in cost to manufacture, or is there a practical floor on the cost side?  Are they better or worse margin than the flagship product?  It will probably be a couple of quarters before we get a clear trend forming, and Apple is not likely to break down sales by iPhone generation anyway.  

        Either way, it’s clear the company is broadening its portfolio in a play for market share gains.  They have chosen to be subtle about it, rather than release a separate “nano” version of the phone.

    • I think it will have impact but I don’t know to what extent. I looked at its likely impact on pricing here:

  • Katch

    Scary how f’d up Wall Street is.  

    • It appears that now only hedge funds and institutions are being allowed to make money off of Apple.  Late individual shareholders are getting nothing in return for their investment.

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  • One issue that may be worth discussion in a future post is the way Apple deals with obsolete (iPhone 3GS)  or customer-returned inventory.

    While Apple is famous for the rarity of discounts on its products, it does offer reduced pricing on what it calls “refurbished” iPads, Macs, etc.

    It seems to me that this is a quite elegant and efficient way of dealing with what would otherwise be a costly problem. Even the most tightly managed logistical system is going to end up with some past-year model products. And even a Six-Sigma manufacturer with very high customer satisfaction is going to see a certain level of returns.

    But rather than junk these products, it seems as if Apple uses them to create a “stealth” low-end product. Capturing the custom of price-conscious shoppers without tarnishing or otherwise diminishing the main brand.

    It would be interesting to know if, and how, Apple differs from other consumer electronics manufacturers in this regard.

    • Anonymous

      The refurbs are also where customer replacements come from. That is why they just swap you when your phone or iPad is bad.

      • This is certainly quite possibly occurring, but its not been my experience the times i’ve made a product swap. The products (a mag safe ac adapter x 2, and an iPod shuffle) were brought out from the back in regular retail packaging. Regarding the online refurb store, I’ve ordered the majority of my apple products from them (exceptions being a power mac and my iPad2), and in all but one instance, they were new products, but previous generation models, i.e.,  6 months old. The one instance where it truly was a refurbished product I was quite happy with. It was a corporate leased laptop in perfect condition, with maxed out RAM and a larger HD than I had paid for. Bonus!

        I am interested in any data you might have regarding swapping used equipment for old. I think it is occurring, but that it is a mix of new overstock and actual refurb.

  • Anonymous

    we all know  that the old versions,  iphone 3 , iphone 4 has been selling very well since the sad death of steve jobs,almost as good  the latestst version 4s. Is there a Jackson  and Amy Winehouse effect?
    and I would like to see a continuation of the most clear graph Horace ever had!
    Rim now 14 and iphone 17 million …

    • I’m pretty sure I posted this recently but it’s easier to show the chart here than to find the post.

      • The chart seems to show that the introduction of new iPhones boost sales, but not to a level consistent with your 37.5m forecast.  

        Is your prediction so much larger than past trends suggest because of the rollout in China, Korea, Russia, Brazil, etc. plus the sale of 3GS at discounted prices ($0 at ATT)?  Another analyst recently reported that there would be about 2 million 3GS sales this quarter.

        Most of the discussion above focused on two estimates, one that highlighted annual sales and the other quarterly sales.  But I wonder about the source of the assumed 100% increase, which wasn’t explained.

        I believe that Apple can sell about all of the iPhones it can produce. If that’s true, then forecasting sales is tantamount to forecasting production capacity.  Do you have any idea how many iPhones Apple can produce if it operates at full capacity?


      • My forecast is 35.7 million, not 37.5. I discussed the production-constrained analysis method in March:

        This work together with the capex data is being taken further by operations researchers in some leading business schools. Hopefully we’ll get some new results soon.

      • Anonymous

        you forgot to update RIM sales to 14 milion in  that  chart , and I dont think you have posted it in an article?

        things happen very fast now, HTC loosing a lot rapidly , so do not just keep this blog as a Apple fan page!


      • The RIM data is not including CQ4 yet. HTC should report flat q/q growth.

  • Anonymous

    I believe customers in US  just ask for an iphone , and if they are clever and listening take the one with the lowest  monthly cost

  • Anonymous

    Horace – What do you think will be on the impact from HP’s decision to take WebOS open source?  Impact on the platforms (IOS, Android, Windows OS, Blackberry OS) vs. handset makers – Nokia, Apple, HTC, Samsung, RIM, et.

    • My initial reaction is that it will have the same impact as open sourcing Symbian had. I’ll have to look at it more as they publish details.

    • Anonymous

      About 40% of WebOS is Linux and about 40% is WebKit. Those are 2 of the most successful open source projects ever. So most of WebOS was already out there for anybody to use for many years. That is how Palm got it in the first place. So there will be very little impact from WebOS being open source abandonware instead of closed source abandonware.

    • Davel

      I have heard that it was being open source.

      I guess the question is how will it be developed and supported? WebOS had cache. If there is support and the people who want to use it do not fight too much, it might be viable. I would think Android licensees would look for a good platform to use without the vendor competing with them.

  • Oakustic

    “As the chart below shows, the last quarter (third calendar, fourth fiscal 2011) was slow with only 52% earnings growth.” Ha, what a first sentence. The pre-analysis baseline is already unreal.

  • gerry.croce

    The iPad has great potential in education, world-wide.  The peak sales season may turn out to be Aug through Dec, to include the holiday period.  That trend could start to appear as early as 2012.  Places like S. Korea, Japan and China will likely embrace the educational uses and the western cache of Apple.  I guess 50M units per year for education alone within three years.

    • This will be amplified if Apple keeps the iPad 2 at a lower price point gong forward, making it even more attractive to the education market. That would also cut most Kindle Fire erosion. No one in their right sense believes a Fire is actually equivalent to an iPad. It is all about price point.

      • Anonymous

        I believe this will definitely be the case when ipad 3 debut. 

        Due to the higher cost incurred with the better screen being used, I see the line up as such:- IPAD2 WIFI 16G  $399- IPAD2 GLOBAL-3G 16G  $499- IPAD3 32G  $599- IPAD3 64G  $699- IPAD3 128G $799- IPAD3 GLOBAL-4GLTE 32G  $749- IPAD3 GLOBAL-4GLTE 32G  $849- IPAD3 GLOBAL-4GLTE 32G  $949

        This will hide the cost behind the increased NAND capacity. However, if tracking of the global demand shows sign of weakness, Apple can really go aggressive with some hit to their margin and lower the above price by 50 to 100. That will almost guarantee a no win battle for other competitors.

  • Davel

    I notice your tablet projection is higher than the reported analyst projections for this qtr. they are essentially flat with Apple 4qtr numbers.

    I take it you believe the holiday bump will outweigh the Fire effect?

    • Are they? I don’t know what the other analysts are projecting but I would caution that analyst projections have been wrong before. Come to think of it, they’ve been wrong a lot. See:
      Regarding the Kindle Fire, I am very skeptical there will be any impact. Not only are the two product positioned very differently, sold through different channels but the Fire has a very limited distribution network.

    • Anonymous

      By “Fire effect,” do you mean that feeling of disappointment the new Kindle Fire user gets when they realize it is not an iPad?

  • Joeyinstall44

    Any thoughts to the (likely) China iPhone launch this month and upside potential to your numbers?

    • The method I use is supply-based. In other words, there is no accounting for demand or distribution. Apple sells as many iPhones as it can make so the only question is: How many can it make?

  • unhinged

    “There have been only two quarters where we could measure [iPad] y/y growth: 182.8% in Q2 and 165.6% in Q2.”


  • The street consensus is EPS of 9.73   
    Your take is 12.3.  
    If you are right this could be one of the biggest blowout results in AAPL history.
    May you be right Horace!!!

    To all:  Wish you the best for the holidays and remember that things turn out best for people who make the best out of the way things turn out.

  • Anonymous

    Horace – I also posted this on your piece about the Commoditization of Apple.  Wondering about the early data from Verizon that they sold 4.2MM IPhones in the 4th Q. Not sure if you went so far as to predict the sub components of your 35.7MM number from this article. Perhaps it doesn’t matter since, as you’ve stated earlier, they will sell as many as they can make and Verizon even said they still have a 120,000 unit backlog at the end of the year. Thanks

    • It’s just coincidence, but the sequential increase in Verizon sales (210) is the same as the sequential increase I forecast for all iPhone sales.
      More curious to me is how many of the units allocated to the Chinese (and other countries) launch on the 13th were produced and shipped to operators in Q4. Q1 may show a sequential increase yet again.

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  • Anonymous

    Looks like you were pretty close, Horace!

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