What did I get right (and wrong) about the fourth quarter?

I’ve been publishing my estimates for Apple’s business performance for a few quarters (see here, here and here). My estimates have been collected along with those of dozens of others by Philip Elmer-DeWitt at the Fortune Apple 2.0 blog.

I’ve also been scoring my performance and discussing the causes of errors. Here is the analysis for the fourth quarter 2011.

My estimate for Mac growth was very precise. It was based on a 27% growth estimate. It turns out that growth was well within historic range and thus quite predictable.

iPhone and iPad error was very modest at less than 5%. This led to a very low error on Revenues (as I also did not expect ASP to change).

I was too pessimistic on the iPod, expecting 30% decline and 13.6 million units. In reality the business declined by only 21% and Apple still sold 15.3 million units at an average selling price of $164.

Due to an underestimate on margins which are highly sensitive to iPhone margins my gross margin estimate was off by 6%. This led to a relatively poor EPS error of 11%.

Nevertheless, the “grade point average” for the quarter was 3.6 which is nearly an A-. This is an improvement from the B- from the last quarter.

Because the accuracy was good, there is little to be learned from the quarter. Perhaps the most important observation is that the iPhone recovered from two outlying quarters. The second quarter where it overshot expectations and the third quarter where it undershot. These were hard to predict because the product went through a delayed transition which whip-sawed both production and sell-in.

What we saw in the fourth quarter is a  return to the predictable historic growth of nearly 100%.

To give a perspective on the performance of other analysts, a motion chart showing their errors is here.

See also the video PED published of the same data here. (This video was produced from the same motion chart shown above, selecting bars instead of bubble as the chart type).


  1.  The scoring of the error is according to the following table:
  2. The results can be seen for all the other analysts as a table here (with data since mid 2008).
  • Anonymous

    I think there was some ‘Steve Jobs effect’ in Q4 due to his passing – if Apple can maintain that momentum I would be very impressed!

    • Have you seen the Apple growth scorecard?

      The quarter was not an anomaly.

      • Anonymous

        Tracking percentage growth and assuming it will continue is pretty naive, as there are only X number of people on the planet that can afford an iPhone/iPad and that number is not growing at these sort of rates! While the percentage growth may be in line with historic figures, clearly their growth has to slow down with the overall smartphone market (now growing at ‘only’ ~50%/year). Time will tell, but Steve Jobs was a rock star and there was undoubtedly a surge in interest in Apple as a result 🙂

      • Anonymous

        So make some predictions based on your theory above – will compare yours and Horace’s predictions in 12 months and see what the result will be. Horace and other independent analysts have been remarkably accurate in their forecasting, they know what they are talking about.

        Granted, yes the iPhone can’t continue to grow at 100% every year indefinitely – but even if it only continues the trend for another 12 -18 months, and then levels out to ‘standard’ 20% growth (conservative), the implications for apples revenue & earnings are gigantic.

      • Anonymous

        Exactly Kirk, I am not saying for one second that Apple sucks or will shrink – couldn’t be further from what I am saying. I’m saying they are SO successful this percentage growth rate for revenues and profits simply cannot continue as they’re going to reach saturation point very soon. I expect iPhone growth to moderate to ~50% per year which is still insane for a company of this size and profitability!

      • That is what people have been saying over and over and over again You underestimate the remaing growth potential, which is still out there for Apple:

        (a) Developed markets. Smartphone “non-consumption” is still big. People will continue to switch to Smartphones. Apple is in a good position as we have been oberserving.

        (b) Emerging markets. Haven’t you seen the maniacs in front of the Apple store in Beijing?

        As insane as it might seem: Growth will continue on an incredible rate.

      • Anonymous

        Babak, even when considering the global smartphone market, no analyst thinks that smartphone sales will exceed 1billion per year before 2014. They expect ~50% growth this year. Apple growing at 100% would imply they double their market share … and that isn’t going to happen with the iPhone 4S.

      • You are not seriously referring to analysts’ estimates, when talking about the future, are you? Anyway, let’s just wait and talk this over in 12 months from now.

      • You are not seriously referring to analysts’ estimates, when talking about the future, are you? Anyway, let’s just wait and talk this over in 12 months from now.

      • Anonymous

        In 2011 smartphone unit sales grew 61% globally … its been slowing down for 2 years already. Its a pretty obvious trend as the market gets bigger and gets closer to saturation.

      • jawbroken

        If, as you say, global smartphone sales grew 61% globally in 2011 and Apple grew 100% in the same period, why do you presume it will be significantly different in 2012 when your estimate for smartphone growth is around 50%? Will that 11% make a big dent? What is your prediction for their 2012 growth?

      • Davel

        Apple has just started hitting China and a few other large countries.

        If the excitement of China continues they can have their run for a while as they are just getting started there in addition to Brazil and other places.

        In the USA they still have 1/2 the mobile market to serve. There are still many without smartphones in the States.

      • alistairmilne

        Well its been 11 months … I think its clear to everyone that Apple can’t and won’t grow at 100% per year or even close going forward. Even I am surprised how quickly the ‘magic’ surrounding Apple products has been lost (especially outside the US).

      • KirkBurgess

        A fair comment.

        Apple definitely has chosen not to enter emerging markets with a cheap device, and Samsung has leaped in with cheap sub $100 android smartphones replacing its feature phone range very successfully (which I assume provided a bump to their ASP).

        Lets see how we end up in 3 weeks at earnings – 40% year on year EPS growth seems to be the upper optimistic estimate (about 50% growth if you adjust for the extra week last year).

      • SamLowry

        “there are only X number of people”…yes, but how many? and why does the market expect that saturation is reached now??
        let’s check some numbers:$128B revenue over the last 12 months equals $350M each single day.
        if I assume 250M customers (e.g. number of credit card accounts, or iPad+iPhones+Macs, or similar), that’s $1.40 per customer per day. That number also matches my own long-term average Apple stuff consumption. That is about as much as I also spend on icecream, or 1/3 of what I spend on beer. So, with up to 1B people as potential customers and many of them willing and able to spend more on stuff they (don’t need but) like, I think there’s a lot of upside potential in revenue, and even more for profits. The question is, will Apple invent more categories of want-have stuff? (I bet on it)

      • X is easily determined: there are about 6 billion people on the planet, and Apple has cumulatively sold about 300 million iOS devices. Although many people own more than one, the basic fact is that there are about 19 people who don’t have an iOS device for every one who does.

        Just by the rapid growth rate, most of the devices now in circulation are quite new and not needing replacement. But between FaceTime/Skype, YouTube, Siri, Facebook and a host of others, people are very likely to demand more powerful, more fully-featured and more tightly connected devices. Apple’s customer satisfaction scores will matter here because the apparent lifetime for the nascent mobile category is somewhere around 18–42 months.

        Looks to me that supply-side constraints are the only limits to growth. And not just that there are only so many people who can be organized onto assembly lines: Apple needs to keep reinventing its software, hardware and media offerings both quickly and surely. 

        We tend to overlook the many turkeys that Apple has produced because its hits are so astonishing, so I think the question for Apple is whether they’ll keep swinging for the fences every couple of years, or whether they’ll go for a Moneyball-like “on-base percentage” that hasn’t worked especially well as Microsoft’s business model.

      • Anonymous

        You are off by one billion — the world population is just about at 7 billion right now.

        That said demand is amazing — we were in a country without Apple distribution last month, and the upwardly mobile people there want to get their hands on iPhones and iPads — by any means necessary, which is essentially the black market right now.  Apple still has a long way to go before they meet current worldwide demand.

        Of course Apple may yet introduce a brand new successful product…

      • “there are only X number of people on the planet that can afford an iPhone/iPad”-alistairmilne”

        Do you know how long and how often I’ve seen that very same argument expressed? Just to take a recent example, I read that exact sentiment the day the iPad went on sale and sold 300,000 units, the day the iPad sold its first million units, the day the iPad passed 3 million in sales and the day the iPad passed 10 million in sales. The statement is repeated every time iPad sales break a new record and is proven wrong every time the iPad sets another new record. Yet no matter how often the “limited” pool of people who can afford iPads expands, pundits are always quick to assert that “this time” the limit has been reached FOR SURE!

        Your statement is based on a misunderstanding of economics. Yes, there is a floor, below which a certain segment of society cannot afford certain goods. But once you rise above that floor, sales are determined by value, not by price. Look around and you will see that this is true. If people value something highly enough, they will find a way to purchase it.

        Value – not price – is what matters. 

      • Anonymous

        Clearly I am not saying the limit has been reached, I merely argue for a lower yearly growth rate more in line with the broader smartphone market (nearly every analyst expects the market to double in 2-3 years to 1 billion smartphones/year). For Apple to exceed this growth rate by a factor of 2 they’d have to either win a lot more market share … or have the iPad become as mainstream as the iPhone … or launch another new product which is wildly successful.

        None of these are impossible, just hard to predict.

        If you believe disposable income is not a factor in identifying the ceiling level for a product’s potential sales then I can’t even debate economics with you. Apple only has retail outlets in 12 countries for good reason. If you bother to look it up, they are all – with the exception of China – feature in the top 15 countries by disposable income!

      • It’s a good thing they still have a lot more market share to win.  They don’t even have 25% of the smart phone market.  And not even 10% of the total phone market.

      • This was your argument: “only X number of people on the planet that can afford an iPhone/iPad and that number is not growing at these sort of rates!”

        The argument is ludicrous. The pool of people who have $500 or more in disposable income is enormous. Apple hasn’t come close to exhausting it. The pool doesn’t have to expand for iPad sales to expand.

        It is not a question of how many people can afford an iPad, it is a question of how many of those people who can afford an iPad value the iPad more than their $500 (or alternative purchases).

      • Anonymous

        Of course, you’re right. Apple will continue to grow at 100% per year despite the overall smartphone market only growing at 50%/year (and slow) down and despite the iPhone making up over 50% of Apple revenues.

        Eventually Apple will sell 2 billion iPhones and iPads per year even though the world’s population is only 7billion.

        You, my friend, are a genius.

      • twilightmoon

        umm.. did you actually read his post? Try reading it again.

      • Thank you, Twilightmoon. You took the words right out of my mouth.

        I’m not arguing that iPhone/iPad sales WILL increase at 100% per year (although it might). I’m arguing that the pool of potential buyers who can afford one is not (yet) a limitation on its growth.

      • Adamthompson3232

        I am willing to bet you are a college student or just out of college with very little, if any, real world demographic analysis experience. Apple has stores in 12 countries because they are focusing first on the largest economies (for the most part). However, virtually every country in the world has neighborhoods/regions/states that can accommodate MANY Apple stores. Apple is taking a very deliberate approach but one should not be so naive as to think the opportunities  for new stores are limited. With a lot of demographic analysis experience behind me, I can say with a very high degree of confidence that Apple can add 10x more stores and still not be anywhere close to tapping all the possible profitable locations on the planet. Of course, right now every store is essentially a walk off grand slam home run to win the world series and by the time Apple has 10x more stores than it does today each new store will likely just be the equivalent of a lead off homerun in a regular season game. Regardless, these stores are insanely profitable and there is virtually no limit to the number of locations Apple can open them in. Apple provides premium quality products at price points that make them accessible to far more people than most premium products. Further, pocket computers (e.g. iPhone, iPad, and iPod Touch) are becoming almost must have devices for everyone on Earth. For many, they are the only computing device they own. This trend will continue for many more years. The markets are simply huge…and they’re expanding rapidly. Apple has doubled iPhone volumes every year since launch (+/- a few percentage points each year) and that trend can continue for at least another year (this year). iPhone is currently on less than 300 global carriers. RIMM is on 600+. Sure, Apple’s 300 are 300 of the biggest but we have a long ways to go for carrier additions and smart phone penetration within each carrier.

      • The hypothetical limit has been cited for all phones and all computer sales since the industries emerged. Nobody predicted that there would be a billion mobile phone users and yet there will certainly be at least five billion.
        Sent from my iPad

    • “I think there was some ‘Steve Jobs effect’ in Q4 due to his passing”-alistairmilne

      I’ll go the other way. If there was any effect, it was negligible. 

      Apple’s products aren’t art or collectibles. No one is buying them for sentimental reasons or because they think Apple’s products will appreciate in value.

      People don’t buy Apple’s products becuase they like Steve Jobs. They buy Apple’s products because they like the products that Steve Jobs made.

    • Anonymous

      So are you implying that similar growth on previous quarters was due to the fact that Steve Jobs was (as Monty Python would put it) “not dead yet”. 😉

      Hmm, growth because Steve Jobs was dead, and growth because Steve Jobs wasn’t dead. Maybe (just maybe) the growth had nothing to do with Steve Jobs’ life status, and more with Apple producing products and services that outshine those of competitors.

      Something to think about.

  • Ajay S

    Great job Horace. 

    With high resolutions displays expected on iPad and Macs this year may well end with Apple delivering multiple blowout quarters

  • Davel


    Your prediction was spot on.


    • Yes, congratulations are certainly in order. Well done, Horace. Well done.

  • Adamthompson3232

    Why would A+ be 5.0? Shouldn’t it be 4.3? When I was in college and b-school it was actually just a 4.0 like a regular A but it should get some benefit above 4.0, just not a full grade point.

    • I’m using the grade scale from MIT. I feel that getting a near perfect estimate is worth an exceptional grade, but note that it’s very rare.
      Sent from my iPad

  • Adamthompson3232


    Does the holiday Q tell you anything about gross margins by product line? Perhaps iPhone margins are better than we previously thought? It seems possible that the 3GS has very high margins even at a “free” price point. Perhaps the 64GB capacity 4S also boosts iPhone margins? Perhaps iPad also has better margins than we previously thought? Perhaps economies of scale across all iOS products and the Mac are continuing to drive overall gross margin expansion? 

    Based on Apple’s guidance for the current quarter, gross margin % will be 44%+ this Q and could fairly realistically (based on average past gross margin guidance beat rates) be up sequentially (44.7%+). 


    • Margins improve with volume and with mix. Total margins improve with increase of iPhones as part of total revenues. This trend has been in effect since the iPhone launched though there are some variances as component costs fluctuate.
      Sent from my iPad

  • Anonymous

    Why does one have to be oh-so-precise?  I’d be more interested in the longer-term accuracy of analysts predicting aapl’s stock prices every month.  The 1-year target number they provide is meaningless — so much happens in an year in this industry.  

    • Chandra2

      I do not understand what point you are trying to make. At least, on a Q by Q basis they supply hard numbers that can be graded against like how Horace has done. The long term forecasts of analysts have been ridiculously childish and immature. Most of them say, 50% for next year and 15% for outlying years. They have been saying that for many years. Why does one need to be analyst to throw such meaningless numbers out there. What annoys me more is, people take them seriously and publish those projections as consensus future growth estimates. 

  • I’m heading to China tomorrow. I got a specific request to bring  iPhone 4S with me.  iPhone 4 is in such short supply in China that one needs to get a lottery ticket from an official Apple store to get one! 

  • pds


    Based on your previous comments about Apple’s capital expenditures plan for the year – any chance you’d hazard a guess at an estimate for Apple’s Q1 2013 ( next fall quarter )?  Assuming they continue to be supply constrained and baring a new product line announcement it boggles the mind where they might be a year from now.

    • It should not boggle the mind. The market is 1.5 billion phones and likely to increase. The market for iPads is greater than the market for PCs. Apple needs to meet demand and are compelled to do so. I can only assume that Tim Cook is spending all his time working on scheduling volumes for calendar Q4 2012 as we speak. The products which will ship this year were engineered last year or even earlier. The discussion today is on products for 2013 and production for 2012.

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