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A preview of Apple's performance in Q2

In anticipation of the earnings release tomorrow, I prepared a iPad-enabled audio-visual chart-based discussion of my expectation for product-level performance.

I discuss six topics in a historic context and the reasoning behind my expectations for the just-ended June quarter:

  1. Units by product line
  2. Unit growth
  3. Gross Margin percent (profitability) by product
  4. Pricing power in terms of revenue per unit sold
  5. Contribution to revenues for each product
  6. Contribution to margin for each product (i.e. profitability)

The discussion is packaged as a “padcast” which means you need to have an iPad and the Perspective App available on the iTunes App store in order to view the content.

It’s available for $0.99 here.

 

  • sribe

    I imagine you meant Q3, not Q2.

    • http://www.asymco.com Horace Dediu

      I say Fiscal Q3 when I mean Fiscal Q3 and Q3 when I mean calendar Q3

      • micromeme

        the padcast is great, much more useful than podcasts. Do you have any breakdowns of revenue or units by global region? Are the underlying dynamics of the phone vs pad growth dominated by the different penetration of the devices across the world?

  • http://twitter.com/Yelmurc Brian W. Crumley

    I like the idea of selling presentations with a audio track in the background. Downloaded the app and your presentation. I was somewhat disappointed that you didn’t attempt to break down the revenue by region. Since China percentage of the revenue is increasing dramatically.

  • Sharon_Sharalike

    I’m unable to purchase it. When entering my Apple ID to complete the purchase the keyboard is not fully exposed, preventing me from typing parts of my ID. The keyboard has only three rows visible. If I’m not the only experiencing this your stats may well be disappointing.

    • Farshad Nayeri

      Sharon, can you please send a screenshot to perspective@pixxa.com?

      • Sharon_Sharalike

        Well I went into a different “story” and when I returned to this one I tried to take a screen shot, but of course now the full keyboard appeared :-)

        So I can’t reproduce it, but I was able to make the purchase. Thanks. And to everyone else, I apologize for muddying the comments with this off-topic stuff. At the time there were no comments and I thought it might be a widespread problem.

  • http://twitter.com/macintux John Daily

    Couple quick notes:

    It would be less confusing if you expressed the timeframes as end of month (or don’t have a day of month indicator at all); for example, the end of fiscal Q3 is the end of June, not June 1, as the graphic indicates.

    Also, the 3rd slide is mislabeled as “Gross Margin Percent.” I spent half the audio on that slide trying to figure out how the gross margin on iPods could be dropping so dramatically quarter after quarter.

    I have some nitpicks on the app itself too, but I’ll spare you those. Overall, though, I think this is great, and I hope you find this to be a profitable venture.

  • Mark

    I was unable to hear any audio when opened up the presentation?

    • Farshad Nayeri

      Are you sure your iPad sound is turned up and not muted? If you have issues please email perspective@pixxa.com.

  • iRush

    Is there any trick to hearing the audio; I bought the ‘padcast’ but can’t hear any audio and yes I have the volume up – tested iPad is ok by playing some music.

    • Farshad Nayeri

      Most likely you are muted. See pixxa.com/help/media.html .

  • iRush

    Sorry, audio just started working; possible finger trouble on my part, but also possible it is a bug.

    • Farshad Nayeri

      iRush if there is a way you can send the condition you saw to perspective@pixxa.com we appreciate it, include iOS version please.

    • Farshad Nayeri

      Most likely you are muted. See pixxa.com/help/media.html

  • http://twitter.com/thomasalvarez Thomas Alvarez

    The audio is a little low while watching it on iPad with volume up fully. Horace and his soft spoken-ness :-) .

    On the Gross Margin slide the audio starts playing and cuts off, “The story here is one where here again we have historically.. a….”. Is this a known issue?

    • Farshad Nayeri

      Thomas, you are right, we can turn up the volume on next padcast.

      • http://twitter.com/thomasalvarez Thomas Alvarez

        On the Gross Margin slide and the Margin Contribution slide the audio cuts out really early. I found this is due to iOS 6 beta, so just an fyi. It works properly on another iPad I have running iOS 5.x.

        You do need to add a Restore Purchases button to the app though. I hope “buying” it on the same iTunes account, but a different device didn’t charge me twice. But I won’t feel that bad supporting Horace twice. :-)

      • http://twitter.com/thomasalvarez Thomas Alvarez

        On the Gross Margin slide and the Margin Contribution slide the audio cuts out really early. I found this is due to iOS 6 beta, so just an fyi. It works properly on another iPad I have running iOS 5.x.

        You do need to add a Restore Purchases button to the app though. I hope “buying” it on the same iTunes account, but a different device didn’t charge me twice. But I won’t feel that bad supporting Horace twice. :-)

      • http://twitter.com/thomasalvarez Thomas Alvarez

        On the Gross Margin slide and the Margin Contribution slide the audio cuts out really early. I found this is due to iOS 6 beta, so just an fyi. It works properly on another iPad I have running iOS 5.x.

        You do need to add a Restore Purchases button to the app though. I hope “buying” it on the same iTunes account, but a different device didn’t charge me twice. But I won’t feel that bad supporting Horace twice. :-)

      • Farshad Nayeri

        Thomas, most likely it is because of iOS6 Beta. We don’t support it yet. See pixxa.com/help/media.html

  • beidaren

    This could be the model to disrupt wall street sell side analysts business. It sure beats the blast voice mails I used to get from street analysts in the morning about aapl.

  • LRLee

    Works great but when AirPlay mirroring, I got no sound. Turn off mirroring sound kicks back in on iPad. Looks great on a tv

    • Farshad Nayeri

      LRLee we were able to replicate the airplay sound issue, will investigate. Frankly we have done a lot of live shows over airplay but not recorded.

    • Farshad Nayeri

      For what is worth, unlike most video you watch, our motion charts are drawn at retina levels. Sadly AirPlay has to rasterize them before posting to AppleTV screen…for now.

    • Farshad Nayeri

      For what is worth, unlike most video you watch, our motion charts are drawn at retina levels. Sadly AirPlay has to rasterize them before posting to AppleTV screen…for now.

  • Claude Hénault

    On your final two graphs the show did not move off the base year automatically, and I had to slide the bar manually to catch up with the audio that had you discussing numbers posted during the most recent published quarter. Once I made the manual catch-up, the automated visuals kicked in and synchronised with the audio for the rest of each graph’s presentation.

    BTW I watched it mirrored to my TV. Worked fine, except for the above.

    • http://twitter.com/palimondo Pavol Vaskovic

      Same issues here. Had to scroll manually on last two screens.

      Farshad: I had to pause several time, as the discussion was quite long, it started to get annoying that it then resumes from the beginning of the narration on given slide. Did you consider adding playhead indication to the bottom of the screen while controls are displayed?

      • Farshad Nayeri

        Yes. I agree we need to make the interaction model better.

    • Farshad Nayeri

      Claude, the problem has to do with how we are using iOS scheduling. Should have something that addresses this real soon now.

  • Matthew Slayton

    Fixing sound issues: please be sure your mute button is off; I was listening to music, then tried to listen to the padcast with no luck and figured there was a glitch somewhere. Turns out my mute was on, even though music was playing on my iPad

  • torifile

    The long spoken of disruption of education is beginning. Interesting use of new technology for this purpose! I’m excited to try this app out for my own teaching.

    • Farshad Nayeri

      torifile–that’s exactly what we are trying to achieve: Explore, Be Inspired, Learn, Create, Publish. More in that virtuous cycle coming soon!

  • Ian Ollmann

    2) Unit shipments plot and others need x-axis labels. The selection rectangle isn’t enough because it doesn’t give you any sense of what sort of scale of timeline you are looking at.
    3) Gross margin percent plot looks more like a growth chart. Probably mislabeled.
    4) software revenue per unit look a little low at 0

  • Haysdb

    I downloaded the app but when I try to buy the padcast I just see “Processing…” and the little spinner thingy, and my iPad is now running v.e.r.y slowly.

    • Farshad Nayeri

      Haysdb: Most likely because you have disabled In-App purchases. Hundreds of people downloaded this padcast so I suspect it is something about the configuration of the iPad. Hence the in-app purchase restriction, at least this is my guess.

  • noliv

    I experience the same problem as Thomas Alvarez, audio stops early on several slides. I’m not mad at you because I’m on the last iOS 6 beta, just FYI (and it’s a 3rd ten. iPad, if that matters). It also occurs after a fresh reboot and only launching Perspective.

  • gerard

    i liked the presentation app

  • JoeBen

    Awesome!!

  • mathp

    Horace, I rely on your estimates greatly, but now I find that I have to have an ipad to see them? Is there any way you can help out the little people here?

    • http://www.asymco.com Horace Dediu

      The padcast does not cover new estimates. The original estimates were posted in June and they did not change.

  • Gordon Shephard

    While it’s probably obvious to most people – it would be useful those that it’s not, when discussing growth to be explicit (at least the first time) as to whether its YoY or QoQ. Also, as others have noted, the Unit growth chart is mislabeled “Gross Margin Percent” ( I realized that we must have been YoY only when noticing there are only six data points for the iPad, and no seasonal behavior for growth on the iPod)

  • Leukotriene

    Horace what’s your estimate for total revenue and total profit for the quarter? (Maybe I’m dense, but I couldn’t find it in the padcast. Love the app by the way, I think I may just use this instead of PowerPoint for a talk I’m giving next month.)

  • Gordon Shephard

    Small nitpick – the PadCast Application should be able to take an initial data point without showing a line up from zero. As it stands, there is a distracting indicator of ramp up from zero which is inaccurate. Also, “Software” appears as 0 in Revenues per Unit, which is probably inaccurate. Probably better to put a ?, N/A, or simply leave out software if there aren’t any numbers available.

    Overall though – nice concise quarterly analysis. Looking forward to chipping in my $1 each quarter. Hoping that there will be some value added analysis available as an upsell beyond the quarterly projections.

    One note – the commentary was really great to emphasize things like the change in the business contributors – yes, it’s obvious from the chart, but spending a minute or two to highlight it, really drives things home. “The iPad is really the big story of the next year.” – Loved the entire Revenue Contribution discussion.

  • Farshad Nayeri

    For those of you who had problems with sound, this is most likely your iPad is muted. Worse yet, you probably don’t know it! See http://pixxa.com/help/media.html for more info about why your story may not have sound.

  • aaarrrgggh

    Well, estimates off a little bit…

  • Steve

    This makes no sense.. Horace, maybe you can discuss this on the next Critical Path episode, but here goes…

    Apple posts earnings of $8.8 Billion in profit, and $9.32/share, but yet the market sells off, because it ‘missed expectations’. But as you’ve discussed previously, the market has basically 0 expectations for Apple’s profits as noted by the below-market multiple it receives (particularly ex-cash). So if these profits aren’t factored into the stock price, how is it that it drops like a stone when the expectations aren’t met? If there was such high expectation, shouldn’t the stock trade at a higher multiple?

    • graphex

      Steve, do you believe that all or even most aapl stock owners are selling every day and the pool of buyers are people suddenly deciding that today is the day to buy? This is simply not the case. Majority of daily volume is by ‘traders’ looking to make a fast profit. If you can ignore the daily noise, the trend is your friend and you can profit greatly. See Deagol’s post from earlier this afternoon. http://aaplmodel.blogspot.com/ See it as what it really is…tomorrow’s opening drop is another buying opportunity if you have money to invest.

      • Steve

        Really interesting post. Thanks for sharing! Definitely bookmarking it for part 2!

        And I don’t think that everyone is trading every day. I just find it amazing that the market is so irrational when it comes to AAPL. A company performs like no other and is seemingly priced to fail and yet when they only grow 20% instead of 50%, they’re punished again as if this was a surprise. Contrast that to AMZN, which is priced for perfection to eternity and when it posts a meager profit, the stock pops 10%! It’s madness!

      • gbonzo

        Wall Street had very low expectations for AAPL revenue and earnings growth. It would help to beat them, not to miss them.

      • http://pulse.yahoo.com/_XD4Z2QYS3VFTZP3XNH6DCCSVSY David H

        But ‘the market’ is not irrational. You are too focused on one particular time frame: 24 hours. That is the traders’ window, as a previous commentator has noted. You can only validly conclude that ‘the market’ is irrational if it were significantly to devalue AAPL over a meaningful period of time, such as a quarter, or even a month. In this context you will note that AAPL is still up more than 50% year-on-year, and up a considerable amount this calendar year. How many other investments have done that well? AAPL is simply not up in the arbitrarily chosen time frame you are speaking of: one 24-hour period. You might as well pick a single hour or single half-hour in the day to complain that the market is behaving ‘irrationally’.

      • torifile

        And in the big picture the $30 selloff isn’t that much. If AAPL cost $100/share, it would be $5 down today. If it were $20/share, it’d be $1. That’s nothing in relative terms.

      • Steve

        From http://www.splatf.com/2012/07/apple-jun12earnings-charts/ (via DF) “Apple’s 23% year-over-year revenue growth was its slowest since 12% growth in the June 2009 quarter, and was almost down at Google’s 21% level!”

  • http://www.facebook.com/people/Jesper-Mathias-Nielsen/626289009 Jesper Mathias Nielsen

    Could be interesting to compare to industry-wide unit sales of laptops to see if we are seeing the first glimpses of the cannibalization scenario outlined by Forrester: http://seekingalpha.com/article/523151-forrester-760m-tablets-in-use-by-2016-apple-clear-leader-frames-also-enter-the-frame?source=yahoo

  • Keith

    I must be missing something, but isn’t the Y axis in the chart above off by a factor of 1000?

  • Cecile

    Good afternoon, will your presentation be updated in light of the earnings ? It would be helpful to know why the number of iPhones shipped were much lower than anticipated and why the margins were lower ? The same goes for the Ipads. Your presentation is good although it was a little bit too optimistic.

  • Ron Vanden

    What do you do if you’re interested in what Horace has to say/display, but you don’t have an iPad, even though you do have an internet connection, an iPhone, an iMac and a Mac Book Air?

  • Ron Vanden

    What do you do if you’re interested in what Horace has to say/display, but you don’t have an iPad, even though you do have an internet connection, an iPhone, an iMac and a Mac Book Air?

  • Ron Vanden

    What do you do if you’re interested in what Horace has to say/display, but you don’t have an iPad, even though you do have an internet connection, an iPhone, an iMac and a Mac Book Air?

    • http://www.asymco.com Horace Dediu

      We’re working on getting the app working on the iPhone. There are limits to how clear graphs can be and how much dexterity for interaction can be assumed. Bear in mind that the reason we chose the iPad is because it allowed interaction with the data sets and creation of presentations. The production environment itself is an iPad.