Estimates for Apple’s first fiscal 2013 quarter

I’ve postponed my estimates for the fourth calendar for a long time. The reason is that there have been conflicting data to deal with and I’ve been hoping for some clues to give clarity. Unfortunately, even though I waited, I have not received many clues. Here are the challenges we have to deal with in this quarter:

  1. Management gave very low guidance for the quarter’s earnings and sales. Normally this should not be a concern since the long-term pattern has been for them to “sandbag” significantly. For example last year’s fourth quarter was guided at $9.3 EPS while the company delivered $13.87, a 49% “beat” to their guidance. However Q2 and Q3 beats were only 7% and 13% respectively and if we assume a similar number (10%) for Q4 we get about $13/share which would be a year-on-year decline in earnings (down from $13.9). This has not happened for many, many years. Management explained this through a lengthy set of reasons including a shorter quarter (13 weeks vs. 14 weeks), new product launches, currency fluctuations, deferrals and unfavorable component pricing. Then again, similar explanations were used in the past with no reflection in what actually happened.
  2. Management also launched a large number of new products. This normally leads to a surge in sales. In fact, 80% of revenues would come from a new portfolio of products. Having such a broad launch quarter into a holiday, would normally imply huge growth. Not only is this a critical launch quarter for many products but they also rolled out the iPhone to more markets more quickly than ever: 100 countries in three months. The broad roll-out implies a steeper ramp in production and thus more volumes. This would also contradict the lowered expectations from the CFO. However…
  3. Production was constrained. It was quite a long time before waiting times decreased for the iPhone–longer than what we saw last year. In the earnings call Tim Cook said “It’s difficult to predict when supply and demand will balance, but I’m feeling very confident on our ability to supply quite a few iPhones”. This again implies significant acceleration but did they achieve the targets? He did also announce that they met their target of 100 countries during the quarter but it’s not clear if this was as quickly met as they would have liked.
  4. Margins are complicated. Launch quarters have lower margins typically and this is well understood. However, we have new products in the form of a new iPad at a new price point as well as the new iPhone which may have had some difficult manufacturing issues (i.e. yield). So how much faith do we put in the perennial pessimism in guidance?
  5. There was a vast increase in CapEx in the prior quarter. Normally CapEx spending “leads” production and is in proportion to it. However, the surge in Q2 and Q3 seemed to be unmatched by vast new production, at least that’s what we are led to believe by both consensus and by management guidance. Did this CapEx differ in character from previous CapEx? Was it more “strategic” and less “tactical”? Will the disconnect continue?

There are also the deeper questions:

  • Why there are no new operators being signed? The addressable market has not increased in the last 6 months. Why?
  • Is there a faster product cycle in the works? Is there a shifting of gears to a new product development process?
  • What’s the nature of the relationship with Samsung as a supplier? Is their replacement characterizing the new type of CapEx spending?

All these currents make this quarter doubly difficult to forecast. And it does not help that it comes on the back of two weak quarters which were argued away as exhibiting transition effects.

So I’m very uncomfortable with my forecast and find it hard to defend this quarter. I considered not publishing one at all because it gives too much confidence when none is warranted. However, I received so many requests to publish that I relent and offer the following:

  • iPhone units: 55.5 million (50%/62%)
  • Macs: 5.0 million (-4%/+3%)
  • iPads: 24.4 million (58%/70%)
  • iPods: 11.2 million (-27%/-22%)
  • Music (incl. app) rev. growth: 25%/38%
  • Peripherals rev. growth: 10%/19%
  • Software rev. growth: 5.5%/14%
  • Total revenues: $60.0 billion (30%)
  • GM: 39.8%
  • EPS: $15.74 (13%)

I included two growth figures (in parentheses). The first is a straight y/y value and the second is adjusted by assuming there were 13 weeks last year (and that sales were evenly distributed over those weeks).

[We’ll get a chance to go over this forecast and what is actually reported at Asymconf. Don’t forget to sign up.]

  • actualbanker

    Thouroughly caveated.
    Now let the debate rage!

  • gbonzo

    Dediu, July 31st: “My current forecast is … 110 million [iOS] units in CQ4”

    My comment then: “Your estimate for Q4 (110 million for Q4) is way too high.”

    • Accent_Sweden

      55.5 million iPhones + 24.4 million iPads + say 8 million iPod Touches roughly equals 88 million iOS units. I don’t think a 20% difference qualifies as “way too high” when we are discussing very uncertain forecasts. The key is that the forecasts are made with incomplete data well in advance and intended to be adjusted as new information is revealed. They aren’t targets, bragging points or the basis of buy recommendations.

      • Horace Dediu

        Don’t forget Apple TV. That’s becoming quite a hobby. My estimate is almost 3.2 million in the quarter.

      • rational2

        Yep, that was my gift to self for the holidays. Much better user experience compared to the Roku box it displaced. Not as many “channels” as Roku, but it is hard to go back once you start using it and integrate with your other ios devices at home.

    • EnGeeYes

      I am of the view that his original estimate will be closer to the actual results than his current estimate.

      • disqus_GQzEutM47w

        whats his original estimate?

    • Horace Dediu

      Current estimate is 90 million. I’m not particularly confident since the July estimate was based on CapEx correlation. That correlation is one of the open questions at this time.

      • frankcapra03

        Horace, much appreiciate your through knowledge, insight, and forecasts. Your Q1 estimate looks very reasonable and do-able. It is hard to believe that all the FUD has even caused you to be “uncomfortable”. These Wallstreet Jokers are pretty amazing that they can shake someone of your stature. I thought I had seen it all but realize now I have.

      • Horace Dediu

        I’m not in the least shaken by wall street. I don’t read much of the commentary from that angle. What bothers me is what I cited in the post and is the primary source of all my analysis: management comments. The statements imply contradictions.

      • Marcos

        Horace, I’m aware you went over the point of constrained production and Cook’s comments during the last call. Do you give weight to the idea that, management being as cautious as it has shown itself to be, supply concerns on their part trumped all the (known) positives (including pent-up demand for new products) such that “sandbagging” will turn out to be slightly higher than the historical rate?

      • Zebulon

        Horace, The progression of Iphone sales YoY, as far as AT&T is concerned, is much lower (6.5 % – 8 M vs 7.6 M a year ago) than your overall estimates (50% for Iphones YoY). What are the reasons for this difference ? Would AT&T released numbers no longer be relevant ?

      • Horace Dediu

        The release schedule this year includes much more launch countries than in the past. Historically, AT&T growth and global growth have not been highly correlated. See attached graph.

      • disqus_GQzEutM47w

        Horace, your 55 iPhone estimate is over 20% higher than Gene Munster’s estimate of 45m iPhones. What data points are you using to arrive at such a high estimate?

      • Horace Dediu

        Have you measured the delta between Munster and me in the past?

    • Frank Vaughn

      So what is your estimate at this point? I just try to take encouragement from the snippets on US market share. We are all guessing at this point. Some guesses just have more substance.

  • tedcranmore

    You are surprisingly bullish considering you were so hesitant about publishing your numbers. I think you may be high on Mac considering the availability issues with the new iMac and the NPD numbers for MacBooks make it sound like they did not pick up the slack at all.

    The real kicker will be the iPhone numbers, you are very bullish here but we should note that while the rollout was the largest ever, the initial launch weekend was in the previous quarter last year making that part of the compare difficult.

    The other magic item that we have no previous data is of course the iPad mini. I don’t imagine we will find out the mix, but this will impact iPad ASP and overall margins. We can’t forget there was no starting inventory there so the improved supply left at quarter end will all be sales count in our totals with no offset of starting inventory. It will be fascinating to get this number and then see how much of that is holiday shopping go forward. We also can’t forget that it is a big item in China and Lunar New Year celebrations are not far away.

    • Horace Dediu

      Why do you think I’m being bullish, or, more precisely, what is the basis by which you determine what is or isn’t bullish?

      • rational2

        I guess he meant wrt guidance from Wall Street analysts. I know, I know, they don’t speak the truth even if they somehow figured it out, but these numbers are quite buillish compared to an analyst who was projecting 55 bn sales and about 13.5 eps.
        Note: I trust your numbers and methodology lot more than that of a wall street analyst.

      • Frank Vaughn

        If someone has been right through the last 5 years, please send me a forecast. Horace bases his projections on real data. Unfortunately, the available data is not complete. I’m upset that Flurry withheld IOS to Android mix. They probably also know global iPad mix.

      • BTP

        I think 55m is way too bullish. Based on ATT numbers, they probably added 0.5m iPhones y/y (8.1m vs. 7.6m last year). Based on VZ 9.8m smartphone q4 sales they probably added about 0.4-1.4m iPhones y/y (bw 4.6-5.6m per CEO comments). Let’s assume Sprint sells +0.5m. Generously, this would be +2.5m iPhones in the US, or 20% growth y/y. China sold 2m opening weekend, let’s assume another 1m through end of Dec, so +3m from China. Total US+China adds are: +5.5m. Adding to last year’s total, 37+5.5 = 42.5m iPhones.

        US+China makes up ~ 1/2 global revenues. The rest of world is ~1/2. If the rest of the world grew sales at around the rate the US did, 20%, that would probably be +4m iPhones. So 42.5 + 4 = 46.5m iPhones.

        The earlier iPhone launch will bring in some more phones, but will it bring in +8.5m iPhones to bring the total to 55m? Seems pretty unlikely given that the US grew so tepidly (~20%) and supply constraints applied to iPhones worldwide.

    • johnnygo

      I disagree that Horace is being bullish in terms of iPhone sales. Recent market data, in particular the recent Kantar report, together with the initial sales in China should give confidence in iPhone unit sales above 50 million. If you add to it channel sales (100 operator launch over 100 days) together with ip4/ip4S success at lower price points, you could reach 55-56 million in iPhone sales

      • tedcranmore

        As rational2 pointed out, the basic definition of bullish is simply significantly exceeding consensus estimates of the Wall Street analysts. I agree with your points, but given the difficult compare and the massive volumes we’re talking about, its not hard to see how these numbers end up as “bullish”. Being bullish does not preclude being correct!

  • Jaxon Kumaasi

    Any projections on the forex translation impact this quarter? The pros always miss that in their analyses but it can have a material impact on revenue and net earnings.

  • SimonCopenhagen

    I know that the valuation story on Apple is all about YoY growth these days. But respect to these numbers: Apple sells more than 1 million devices a day, Sundays included. And Apple nets more than 1 Billion a week. And most of this comes from inventions just 7 years (iPhone) and 3 years (iPad) old.

    • Simon Hibbs

      Yep, context is important. At current growth trends in 10 years time Apple will be selling half a dozen iOS devices a year to every consumer in the developed world, so at some point something has to give. The question is when and by how much?

      Expect the press to treat any sign of weakness as signifying the impending collapse and utter destruction of Apple though.

      • Horace Dediu

        In defense of this sentiment, there is overwhelming evidence of failure in the phone market. I have written often about it. The assumption seems to be that success in the phone business is transient and Apple is not just susceptible to this but more susceptible than Nokia or even RIM. This is evidenced by the hair-trigger selling on any slight hint of slowing. I would note however that Apple has announced 500 million active App Store users. The transience of phones is one thing but the relationship through a service is quite another.

      • SimonCopenhagen

        I think it is reasonable to think that the phone as we know it (a brick in the pocket) is a dying concept. Dying, no matter how many iPhones in how many colours and screen sizes. However, I expect the job of getting individuals online and mobile to continue. The phone-as-a-brick will die, but the phone job will merge into new forms. Personally, I expect something to happen on my wrist. This is a vacant, but very useful place for a multi-purpose iDevice.

      • Walt French

        From Twitterdom’s @DrPizza: “As dumb as they are as actual phones, 5″-or-so devices are surely the future. They’re the upper limit of pocketability.”

        My 2010 17″ MBP is the upper limit of portability, and has been discontinued; that’s a warning that the 5″ logic isn’t a slam dunk. But it reminds us that right now, more is more.

        Fix Siri so she doesn’t flub questions such as “again, please?” — which led to, “OK, here’s today’s weather” but no table that she showed before the light changed — and what seems like a causal relationship that asking for driving directions drops my LTE link, plus another 50 challenges, and maybe a tiny or no-screen solution works. Until then, it’s a bit too science fiction-y. This time, the buck would stop w/ T Cook.

      • greendrawer

        The problem with something on your wrist, is that it, thereby, requires two hands to operate. It’s actually more convenient having something tucked away in a pocket. (as strange as that may sound)

      • Frank Vaughn

        Maybe we will have multiple options per our own preferences?

      • Walter Milliken

        I think there’s a niche to fill on the wrist, but it’s not the same job as the iPhone.

        A wrist device is more of an “at a glance” use model, and the amount of information you can usefully put there is a relatively small number of bits: time, temperature, the current AAPL price… small numbers and simple pictures, basically. Otherwise you wind up holding it two inches from your eyes to try to read the screen. Which, admittedly, I do with my watch when I want to read the date…

        I believe we’re mostly going to see the wrist device evolve as a triage device for crucial information, along the lines the Pebble watch people seem to be thinking. We *might* see it evolve into a voice-controlled/voice-output information device, but the computing power issues, and the radio power problem for a cell-connected device, may limit such capabilities, at least as a standalone device. A Bluetooth device suits the power profile a lot better, but requires a Bluetooth/cell bridge device (i.e. a smartphone) to be useful.

        So I’m guessing the wrist device will stay as an add-on device for some time, rather than a standalone communicator.

      • LeCorsaire

        Very insightful. Thanks for sharing.

      • KirkBurgess

        I think voice controlled smart glasses that can display information are much more likely to replace phones than a wrist computer.

      • Walter Milliken

        Smart glasses do have a potentially better display, but the battery issues are still there, and will be increased by the additional pixels that need to be generated.

        That said, I’m still dubious about the whole concept of something that can actively and constantly interfere with sight. Technologically reasonable, but it may not be a sensible thing in the larger social context. I’m foreseeing problems similar to those with cell phones and driving, only worse.

      • Boltar

        Perhaps more importantly than interfering with sight, it obstructs the face. Human brains have an enormous amount of hard wired processing focused on identifying faces and communicating with facial expressions. There’s always the group who wear sunglasses everywhere, and of course those who already have to wear glasses. And the Bluetooth earbud-everywhere crowd who embrace the novelty. But I believe a large majority of people will wait for technology that gets out of the way or disappears. The bulk of the phone market is not going to glasses — though I do enjoy the image of strangers using NFC-enabled glasses to exchange business cards.

        Still there are lots of directions for the future. Implants. Lapel pins. Earrings. Wrist watches. Glasses. All of the above for the techies. As the size and power requirements shrink the form becomes more mutable. Maybe the market will fracture and you’ll never know where someone carries his phone. But I don’t see the market accepting a device that changes some aspect of one’s appearance or dress becoming a universal standard anytime soon.

      • James King

        This. Think of Bluetooth headsets. The ergonomics will prevent mass adoption but I see niche use.

      • deemery

        For what it’s worth, I haven’t worn a watch in about 25 years. I find them annoying. I’m happy to pull my phone from my pocket to check the time (before that, it was a Palm Pilot, remember them? 🙂 And I’m not alone in that; I see a lot of bare wrists these days. (But my wife still wears a watch.)

      • Frank

        I was about to say the same thing. I just realized that my watches have been gathering dust since I got my iPhone a few years ago.

        Creating a wrist wearable phone is simply tinkering with an existing concept. The next huge leap in mobile technology will come through elimination of the mechanical (touch, voice, motion, etc.) interfaces we presently use to interact with devices which link us to the extended knowledge base currently served up by the world wide web.

        I’m betting Apple is working on such devices. Long Apple.

      • FalKirk

        “I think it is reasonable to think that the phone as we know it (a brick in the pocket) is a dying concept.” – SimonCopenhagen

        I’m going to disagree. I’m intrigued by the concept of an iOS/Android watch and I do think that it could replace many phones. However, rather than think if the phone as a “brick in the pocket”, I think of it as a screen in the pocket. We’re moving to a multi-screen world where the phone, tablet, notebook, desktop and television are just screens that display our data. A watch as many advantages but it lack screen size and, as the tablet has proven, when it comes to screens, size matters.

        I don’t think the “screen in our pocket” is anywhere near dead or dying.

      • Ko

        Um, while I agree with you that the “phone” will take on new forms, I disagree that a watch will replace it. However, complete this sentence: 5 years ago, I did not think I would use my phone for _____? In the 1990s it was simply to make calls outside of your house (a cell phone), later on it was to send a types message (text message), later on it was to check e-mail and other thing on the internet (smartphone), and later, to download apps that enhance the “smartness” of your smartphone to do things like gather information, have fun playing games, etc… Now, I am SURE that apple is working on FEATURES of the NEW phone that you will one day say: I cant believe I used to use a phone that didn’t do ______ in 2013. What will those things be? HD projectability? 3-D input and output? Haptic feedback? Increased personalization and a “smartphone” personality? Satellite radio incorporation? Connectivity to your house (home security, entertainment, heating etc). Then, on to the size. Im also sure apple is working on making a phone with adaptable size (foldable glass) which means you can choose the size where and when. Let me put it this way: apple will continue to sell a phone that will do things you never thought you even wanted to do……

      • James King

        Agreed. The wrist is one of the few places on the human body on which people have already accepted technology. The key will be if someone can find a way to present the most relevant information in such a small space. Can Apple (or anyone else) overcome the limitation of a tiny screen?

      • Space Gorilla

        I think where many analysts fail is looking at the iPhone as a phone. It is not. It is a mobile computer. Yes it is sold in the phone market, but I don’t think normal rules apply to the iPhone.

      • Simon Hibbs


        Horace is quite right about the extreme volatility of the phone market, but the iPhone is at least as much an iPod as it is a phone, and at least as much a mobile computer as it is both of those put together.

        I understand what SimonCopenhagen says below, but I don’t see wrist phones working. How do you hold one to your ear and mouth at the same time? I have an iPad on a mobile contract and though I do use it a lot, and in situations where I used to use the iPhone, I still use the phone a lot. It’s far superior as a communications and reference device much of the time simply due to the speed of access and convenience of one-handed use.

        On the other hand I have an iPhone 4 and am very happy with it, so much so that I ‘refreshed’ it for £120 with a replacement handset a few months ago, and don’t plan on getting a truly ‘new’ iPhone for several years to come. However when I do, I’ll replace it with an iPhone. Maybe a ‘5’ when the prices come down.

        I’m trying not to extrapolate from my own experiences linearly to the rest of the world though. I think iPhone sales won’t keep shooting up forever, but as a very successful business they’re going to be around for a long time to come.

      • davel

        I will echo what many here say.

        The smartphone has a place. It is a mobile computer that makes calls. It also has a large enough screen.

        However I believe the trend is to new form factor supplementing the phone at different price points. A wristwatch, glasses, etc. There are many things ( especially with a voice interface ) that does not need a screen.

        There have been many rumors of Google and Apple working on different devices. Obviously everyone sees a similar future. The question is who will have the right vision?

        Apple and Microsoft both saw a world with some sort of tablet device and the computer future tied around some sort of device. But Apple ended with the right vision and the right device and Microsoft is still trying to catch up 10 years later.

      • Frank Vaughn

        ipod always had earbuds. Same with a wrist phone? Probably Bluetooth. No need to hold it like Captain Kirk….

      • GoldenParachute

        Increased sales is overwhelming evidence of failure?

      • ChKen

        To Wall St pundits it is! Because they see a diminishing population to sell to. There’s always a dark side to any bright side that they can promote.

      • GoldenParachute

        Except the human population is always increasing – exponentially, in fact.

      • Frank Vaughn

        World population growth was 1.1% last year.

      • Tytus Suski

        if population grows x% each year then it IS exponential. Let’s not confuse exponential growth with “explosive” growth. 😉

      • James King


      • Gavin Costello

        I’d love to see the numbers showing the average length of tenure for those App Store users. And most importantly from Apple’s perspective, the growth in Average number of devices per user AND the upgrade rate of those users.
        If, for example the 500m were growing at 20% Y/Y and 70% of them had upgraded to a new device at least once each 24 months then you’ve got a continually growing, certain, addressable market for profitable hardware for at least another 2-3 years, haven’t you?

      • Walter Milliken

        Today from

        “On the other hand, AT&T’s original exclusivity with Apple led to half (51.7%) of their iPhone user base upgrading to a newer iPhone – a large difference compared to just 15% among Verizon’s iPhone users who upgraded to an iPhone on Verizon.”

        This suggests that the upgrade cycle is very close to 2 years on AT&T, since about half of AT&T’s iPhone customers should be eligible for an upgrade. That assumes a relatively saturated iPhone population, of course. For a growing iPhone population, the percentage should be smaller for an end-of-contract upgrade, so we actually may be seeing a significant number of early upgrades. It does look like two years is a rough upper bound.

        Verizon’s iPhone population is still in flux; it only got the iPhone in February of 2011, so all iPhone buyers on VZ should still be on their original 2-year contracts. So the 15% upgrade percentage should be entirely early upgrades. And I don’t think VZ is encouraging them earlier than 24 months anymore, though I could be wrong. I thnk all the US carriers stopped offering early iPhone upgrades last year….

      • David S. Matrecano

        Dear Horace,

        AT&T seems to have sold 8 million iPhones in the past quarter. Verizon probably have sold something equivalent to AT&T: that’s another 8 million iPhones. And Sprint?? Well, Sprint, being 2/3 smaller than the previous two, could have sold just 3 million devices. Another 1,5 millions of unlocked iPhones could have probably been sold to the Apple Stores of America to US And foreign customers.

        That sum, in my modest math, the number of 20.500.000 iPhones in the past Q4 (AAPL Q1) in the US alone. Not bad.

        Now, we have to include all the rest of the World so, I quote from press: “Apple quickly rolled out the new iPhone 5 in a record 101 countries in the past quarter”.

        Considering an average of 2 official carriers (here in Spain we have 3 carriers: Vodafone, Movistar and Orange but, in France, Germany and UK there are an average of 4 carriers) so, for simplicity, let’s consider just an average two carriers per country.. 101 countries x 2 carriers= 202 carriers who almost contemporarily rolled out the new iPhone 5 the past quarter and that can also offer to customers the 4/4s.

        If every one of those 202 operators had sold in past three months only 300.000 iPhones each, that alone, gives the shivering sum of 60.600.000 iPhones..

        Considering the unlocked iPhones sold in the same time span in the more than 400 stores all around the world and that could have been a minimum of 2 millions, that gives me a gross total sum of: 62.600.000 iPhones sold worldwide in the past quarter.
        Now: 62.600.000 (World)+ 20.500.000 (America)= 83.100.000

        But I don’t want to be naive so now, I want to remove to my numbers a huge 10% while considering that among the 101 countries there is China (big) but also Bahamas (small) and that there have been very serious supply constraint in the beginning of the iPhone 5 sales. 83.100.000-10% = 75.545.454.

        But if in your opinion I am now being too naive and your you prefer to subtract a 15% instead of a 10%, that will lead us to the number of 72.260.869… Equally not bad…

        Conclusion: After averaging, low balling, reducing, Apple could have sold over 75 million iPhones in the past quarter alone.. And considering that Street consensus is now around 50/55 millions, I say again: NOT BAD!!!!

        Plus, yesterday Tim Cook was in China for the second time in 10 months… For what he’s gone there?? To see the Great Wall or the Forbidden City…. Or maybe, to meet with China Mobile officials for certain sign long time awaited??? Who knows… Bets are open, guys…

        Here I have also deliberately omitted other Apple things that earn billions every month such as the iPad, AppStore and the Mac.

        Not to mention what is already in the pipeline and the 500 million active iTunes account (almost the 10% of the entire world population).

        Horace, If there is something flaw or mistaken in all my above statement, please feel free to correct me in any way you consider correct.

      • Horace Dediu

        You don’t need to guess about which operators are ranging the phones. I published the data on country-level operator coverage for the iPhone and even included the approximate number of subscribers so you can estimate how many phones are supplied. The data is here:

      • David S. Matrecano

        Dear Horace,
        Thank you for the answer to my last post. I have very quickly checked the interesting and complete link you’ve send to me but, I still have had no time to count one by one how many operators per country offer and sold iPhones and how much customers has each one of them…

        I’ll will try to do so this afternoon to compare the certainly true numbers provided by you in your sheets with my “non scientifical and largely instictive numbers”..

        I have a great curiosity to see if my post, who is calling about 75.000.000 iPhones could be true or if “c’est une complète folie..”

        Meanwhile, thanks again for the answer and please receive my compliments for you job. We appreciate it very much so please, go on with it.

        Yours sincerely,
        David S. Matrecano
        Ibiza, Balearic Islands, Spain.

      • Anon

        David S. – Great back of the napkin calculation! I wish you are right. Dont forget also the iPad / Mini as its sales are growing exponentially (market dominance) as the iPhone sold three years ago.

      • David S. Matrecano

        No man, I don’t forget iPad / iPad minis and all other revenue stream Apple currently have or will have in the near future. But here we were taking in account only the iPhones because I was trying to grossly calculate the operators… We will see everything much more clear on January 23rd with the earnings release..

      • James King

        “Expect the press to treat any sign of weakness as signifying the impending collapse and utter destruction of Apple though.” – Simon Hibbs


  • Henry

    Good to see this. Small point- I think the percentages for iPods are backwards (i.e., should be -27%/-22% instead of -22%/-27%).

  • beidaren

    One number from today’s press release is interesting:
    ( )

    total app store account number reached 500mm.
    back in June, the total account number was 400mm. so there was 100mm increase in
    new app store accounts. Assuming the upgrade to new ios users ratio is 50/50 (someone has a more accurate ratio?), the total iOS devices sold should be about 200mm from June to december. An existing iOS user already had an app store account, only new customers need to create new account.
    furthermore, if i assume 1/2 of 200mm were sold in december qtr, we are talking about 100mm ios devices!
    let’s say,
    10mm iPod
    25mm ipad
    65m iphone

    could this be possible? apple’s way of messing with CES or APPL just pre-announced?

    • Walt French

      Well, *MY* “old” iPhone4 is still sitting on my desktop as I figure out what to do with it. (Kids are all current.)

      But if/when it moves on to somebody else, they’d likely open up an iTunes account for it. That blows a big hole in your 2X estimate… putting the number is somewhere between 1 and 2.

      • beidaren

        how about 60%, it still works out like 90mm iOS device in dec qtr.

      • Marcos

        True, but you are neglecting 2 points:

        1) Whenever such a device “moves” on to someone else, we assume a device is bought to replace it (or at least a certain % of those do).
        2) I’m surprised no one mentions the opposite: couples or families with multiple iOS devices that use a unique account amongst them so as to avoid double purchases.

      • Frank Vaughn

        There is a big market in hand-me-down phones. I always have a child, niece, nephew, in-law that needs my old phones and tablets.

  • Jambani


    Apple put out press release today stating they had 500 million accounts set up. Does that provide any added insight or confidence to number of iOS devices sold in December quarter?

    • Horace Dediu

      It’s hard to separate iTunes growth from iOS growth. So much depends on how many people are new to the ecosystem and how many are repeat buyers. They’ve been roughly aligned for about one year but there is a lot of error possible even in the data given since it’s not precise timing.

      • Alex S.

        isn’t it viewed only as a positive? I mean why would there be new iTunes users without a new device? That’s extremely unlikely, also any repeat user already has an iTunes acct so repeat users should not be counted in this, from the face of it, the takeaway is much closer to 100M new IOS units sold since the last report of 400M iTunes.

      • Busy Bee

        One reason for having multiple iTunes accounts is that those accounts are territorial. By that I mean that they are tied to an iTunes store for a specific country, because that’s how music and book publishing rights are divided up. I don’t think they legally needed to shoehorn app purchases into that broken system too, but they did. Anyway, in some ways it works badly, but it works to use an iOS device with multiple iTunes accounts. You can keep old content on your iOS device(s) and switch between accounts as needed when downloading new content. You can also have multiple iOS devices using the same iTunes account.

        So whereas in your experience it might be extremely unlikely that you’d need a new iTunes account, for other lifestyles it’s almost inevitable.

  • Chris Milinazzo

    Very close to my bull numbers, when I say bull I mean what seems achievable, as follows:

    59,905B REV $15.87 EPS

    40.1% GM
    27.8 M IPAD
    47.5 M IPHONE
    5.5 M MAC
    12M Ipod

    Bear case is 56.9B with 14.22 EPS for a modest beat

    Caveat, this is for my own trading purposes and my own due diligence, but I happy to see rough numbers inline with Horace’s. Thanks for work as always Horace, kudos.

    • LeCorsaire

      I hope you guys are right. My number is around $13. I prefer to be conservative, but AAPL has missed 2 consecutive qtrs so you never know.

  • greendrawer

    I’m confused. Why publish forecasts (earnings estimates) that you are “uncomfortable” with, and “find hard to defend”? Are there not projections that you feel are more realistic given the analysis you have done? Or did I just misunderstand what you are saying?
    Thanks for your work, in any case.

    • Horace Dediu

      No, there aren’t any projections that I feel more comfortable with. What I publish is what I feel most comfortable with (meaning that I’m extremely uncomfortable in my most comfortable state.) I would, perhaps, be more comfortable not publishing anything at all but that may lead to another set of concerns: mainly that I would be making a statement with my silence–a statement that can be misinterpreted and needing explanation.

      • Ed Carney

        What you published is a Blowout quarter for Apple and blows away Samsungs projected earnings relatively speaking and and blows away Wall Stree consensus. And this is bad for Apple? Does Apple need to Buy the moon or soemthing?

  • chris berry

    Should Apple report $15 -$15.8 in earnings, where would you expect the stock price to be immediately afterwards? I realize guidance is important also.
    Thank You

    • Horace Dediu

      That I cannot answer. The stock price can be determined through a simple function: take earnings and multiply it by a random number.

      • disposableidentity

        My reaction to this note was expressed through a simple function: take coffee and spray it on my monitor through my nose.

      • neutrino23

        Me too. Funniest thing I’ve read all day. I listened to Horace’s discussion of stock prices on a recent 5×5 podcast so I totally understand his comment.

      • rational2

        I think part of the stock price reaction is a realization that Apple needs a lot of catching up to do in the services area, where Google is way ahead of others and using that position to challenge Apple (and many others). Investors can buy AAPL and GOOG to play the mobile devices/services market and think of their combined market cap as a metric.
        I have watched hundreds of instances over the last 15 years where stock prices move up or down dramatically as they discount some future event. However, after a few months of such severe price dislocation, sellers (or buyers) are sated and have their exposures at levels they are comfortable with. Then the direction reverses on seemingly no new news, purely as a function of money mgmt mechanics. All you have to do is look at FaceBook’s dramatic share price drop from 38 ipo to about 17 at its nadir. When it was at 17 everyone out there was talking about how FB was worth no more than $8 a share. When you hear that kind of talk, you can generally conclude that anxious sellers have already sold down to reduce their anxiety. In FB’s case, all it took was some optimism around mobile ads for the momentum to turn around.
        I think the same is happening with AAPL. Lots of predictions of doom and gloom and how it is going to go well below 500. We saw a double dip to 500 and so far that held. Unless there is no new bad news, hard to see why sellers would be anxious to sell.
        Remember that most investors, once they sell, need to find another investment to replace what they sold. Where will they find another low p/e, dividend paying, high growth company that is generally loved by its customers?

      • Horace Dediu

        If Apple has a lot of catching up to do in services then where does that leave Samsung?

  • Henry

    Apple announced “over 400 million” Apple Store accounts on June 10th, “435 million” on Sept 10th, and “over 500 million” on Jan 7th. Assuming “over 400 million” and “over 500 million” is 405 and 505 million respectively indicates approximately 30 million and 60 million new Apple Store accounts in Sept and Dec quarters respectively- i.e., double.

    Given approximately 48 million iOS device sales in Sept quarter (iPhone, iPad, iPod, ATV), that’s approximately 96 million iOS device sales in Dec quarter.

    Lots of assumptions here, but at least a significant miss looks unlikely and a huge quarter seems possible. Also, your estimates look pretty reasonable.

    • EnGeeYes

      I don’t think the ratio of iOS device sales to store accounts increase is that straightforward although I wish it were. Apple announced “over 200 million” on July 7, 2011- they certainly have not sold (500-200)*2 iOS devices since then.

      • Henry

        I’m not sure where the “*2” comes from, but you can see the approximate relationship here:

        I believe July 2011 – Dec 2012 is over 300 million iOS devices. The exact number I’m not sure of.

      • Walter Milliken

        Since iTunes accounts aren’t repurchased every few years, like iOS devices, the relationship between the curves would probably be more accurate if the iOS points covered a window from current back a couple years or so (i.e. subtract out the cumulative number from 2 or 3 years ago).

        Of course, what the correct window size is, is a matter for guessing as well, so it would also introduce new error… sigh.

        My personal guess (based on nothing but instinct) is that new iTunes accounts probably represent on the order of half of current iOS sales. Some people share an account across devices, and also one person with multiple iOS devices is more common now, which affects the ratio, along with the basic “newbie” vs. “replacement” sales ratio.

        I.e., there are really three cases: (1) new iOS user, new iTunes account, (2) old iOS user buying an additional new iOS device (e.g. adding iPad to existing iPhone), (3) old iOS user with iTunes account replacing an iOS device. As iOS saturates its market, we should see a progression from (1) to (2) to (3) for individual customers. (1) and (2) are “new sales”, but only (1) affects the iTunes account count.

      • John P

        I have 5 iPhones and an iPad all on the same store account. I expect many families are similar

      • rational2

        We have two ios devices (both heavily used) and three itunes accounts — one for each user. I think it is hard to extrapolate sales from itunes account growth.

      • Henry

        Agree. Though when we have little concrete information for inferring Dec quarter results, perhaps these guesses are better than nothing. Perhaps.

      • Frank Vaughn

        I have 4 iPhones, and 3 cellular iPads for our family. Not typical, I realize. Fanboy

      • nungster

        8 iphone and ipads, family of four.

      • beidaren

        i think we can be sure that this is true:
        number of new app store account < number of iOS devices sold in the same period.

      • EnGeeYes

        Sorry, I should have said “not sold (500-200)*1.6 iOS devices (i.e, 48/30)” as your numbers above imply.

    • Shu


    • Shu

      Henry, how do you come up with an estimated number of 96 million iOS device sold in Dec quarter? Thanks

      • Henry

        Assuming (new device sales)/(new Apple Store accounts) in Sept quarter and Dec quarter are equal. Note: This assumption might be wrong (not sure which way the bias would go) and the estimate is very sensitive to the exact number of new Apple Store accounts (i.e., “over 400 million” and “over 500 million” aren’t exact numbers).

  • OviP

    WE are close together.
    I am at 15.81

    55.6 iPhones
    27.9 iPads
    12.5 iPod
    12 Macs

  • SamLowry

    I think the line
    iPods: 11.2 million (-22%/-27%)
    should actually be:
    iPods: 11.2 million (-27%/-22%)

    • Horace Dediu

      Thanks. Fixed.

  • Pileated Woodpecker

    The questions about the future seem primarily to turn on the Chinese market, U.S. tax and economic policy under the current régime, and miraculous new product potential. Taking just one, which is not on the radar, is the potential for turning the mini pad into a more useful device by adding telephone capability. This can’t be a novel idea, but it would definitely take advantage of the iPad’s dominance and whilst it might pillage and burn some of Apple’s other product, it would potentially do more harm to its competitors. If Samsung does it first, Apple would have to follow. So, Apple has miracle product if it wants to take a bit of risk of pirating its iPhone market to some extent, but it needs to take advantage of its lead in the pad market. Of course, the iPad has a mini Sim card in it, but it’s not got the Apple telephone software. Yet.
    I’d sure buy a MiniPad that talked to complement the collection of Macs, touches and pads in our household. So, Apple has potential to take existing product and expand functionality, but the apparent management style is to go with planned obsolescence and limited functionality so as to sell too many different and differentiated devices to its paying customers. Just imagine how many more combo phones and pads they could sell in China, now that they have the mini iPad form factor. Best of all, they already have the technology. Why can’t they be first? Why wait for Samsung? Just delivering more functionality on current devices could cream the competition, which would deliver an upward body blow to AAPL, and destroy the current lack of faith in the stock. They don’t have to do the tv thing to do that.

    • Marcos

      Seriously? The iPad Mini as a phone? I think the “phablet” concept is getting a bit out of hand.

      • neutrino23

        Not for everyone but I can see it working for a lot of people. Look at the various contractors, service people and sales people who currently use a BT head piece tied to a phone in their pocket. How is that different from using a BT earphone/mic with an iPad mini? It would be convenient to talk that way while reviewing a quote or specifications on screen.

      • Ed Carney

        It will be niche, I cannot see any women wanting to put a phone the size of half a pizza on their face.

      • Bob Arker

        Well, perhaps Rosie O’ Donnel

    • Henri Bergius

      Actually, Samsung did do that first. The 7-inch Galaxy Tab from late 2010 was also a phone:

      Of course, that was still way too early days for Android on a big screen, and so the tablet didn’t do to well. Now the concept could work.

    • Walt French

      You must be the idea guy for DigiTimes: this is their 8 Jan story. Their reputation is such that such speculation is enough to cite “supply chain sources.”


  • Peter O


    Did the PR of AT&T with the smartphones numbers released today is in line with your estimates?

    • beidaren

      you are not Peter Oppenheimer, CFO of Apple, are You?

    • Horace Dediu

      AT&T did not report iPhone activations.

  • r.d

    so ATT reported 10 million.

    80% = 8 million iphone sold by att.

    17% = 47 million.
    16% = 50 million.
    15% = 53 million.
    14% = 57 million.
    13% = 61 million.

  • JamesL

    Check this articles from yesterday,
    Quotes from this article

    “Smartphones made up 35.4 percent of all AT&T sales during the 12 weeks ending Nov. 25, inching up from the 30.9 percent during the same period in 2011. “

    “While Verizon saw barely any change in the ratio of smartphones to all other device sales during the six-week period in October/November (31.9 percent compared to 31.3 percent in 2011), it sold more iPhones anyway: iOS devices made up 55 percent of smartphone sales for the carrier, up from the 40.7 percent during the same period a year ago.”

    I don’t see any reason the trend would have changed during the December, a historical strongest month for Apple. I believe IPhone sales are at high end of the people’s projection.

    I am very comfortable with the reports of AT&T’s smartphone sales. This articles from SI( doesn’t reflect the trend settings from above articles.

    • JamesL

      more from this article
      “The firm found that 44% of Verizon’s feature phone user base upgraded to an iPhone, compared to 38% of AT&T’s basic phone users. The company found more success from customers with older models, however, with 51.7% upgrading to a newer iPhone, compared to 15% on Verizon.

      What this article implies that Verizon’s market share on Iphones increased more than AT&T’s. Comments?

  • Walt French

    To your “deep question” of addressable market, an easy speculation is that Apple is waiting for new product that can succeed in the un-addressed markets.

    And further along that line of reasoning, an iPhablet — ugly as the notion is to many of us — might be the ideal mix for markets where the overwhelming majority of phone customers have neither a shiny iMac nor a beige WinXP box on their non-existent desk in their non-existent study.

  • lukascranac

    The most concerning is guidance vs. actual eps. Apple needs to beat its own guidance by 18% to be even with the year ago quarter.

    The last two quarters were way below the 3 year average beat which is about 40%.

    However in the last two quarters the stock price movement had very little correlation with earnings. It used to be that the price of AAPL was driven by EPS growth.

    Volatility was always there but we’ve never seen AAPL reaching all time high after missing analyst estimates.

    I would entertain the idea that for AAPL to reach $750 by March we don’t need YoY EPS growth. All we need is near flat growth and a couple of product launches along with general upbeat market sentiment.

  • Simon Campbell

    Horace: Do today’s numbers from AT&T, Verizon, t-mobile, as well as the activations, accounts, sales share from Kantar, app sales, and a few others help as additional data points that might help with confidence in your above estimate? They all provide some pieces, though they still require projections and extrapolations, but at least with the carriers seem to point to some numbers that can more reliably begin to fill in some areas.

    For example, AT&T reported 10 million SP activations, noting highest ever level of iPhone sales in a quarter (so at least above 7.1 million), Verizon at CES provided some more convoluted data, and t-mobile stated 100,000 per month, at a total now of around 2 million (unclear if those are new phones or transferred from other carriers). The other very small carriers reported their numbers as well I believe, and Kantar reported 53% sales share for iphones Dec quarter (based on their consumer survey methods, not actually sales).

    Data points on international sales seem to be the most difficult to gauge, with reallt just the 5 million china I think.

    • Simon Campbell

      Meant to write 2 million China

  • Ed Carney

    55.5 Million Iphones is bad for Apple? When Samsung only sold(Or gave away) 15 Million ‘Iphone Killers’ S3s?

    • Horace Dediu

      Who said 55.5 million is bad for Apple?

      • Jonas

        The terrible press that is referring to your estimates. Because you didn’t spray glitter and stars over Apple, you are reported as having a “grim outlook” on Apple. Despite giving estimates that someone else might call “bullish”.

        I just call “bullshit” on the whole deal, and thank you for an insightful and well-explained analysis.

  • Ed Carney
  • Chris Reid

    I would be very curious to understand the background color behind how people triangulate unit volumes. It seems like quite a difficult art/science given the lack of clear linear/functional trends.

  • David S. Matrecano

    AT&T seems to have sold 8 million iPhones in the past quarter. Verizon probably have sold something equivalent to AT&T: that’s another 8 million iPhones. And Sprint?? Well, Sprint, being 2/3 smaller than the previous two, could have sold just 3 million devices. Another 1,5 millions of unlocked iPhones could have probably been sold to the Apple Stores of America to US And foreign customers.

    That sum, in my modest math, the number of 20.500.000 iPhones in the past Q4 (AAPL Q1) in the US alone. Not bad.

    Now, we have to include all the rest of the World so, I quote from press:
    “Apple quickly rolled out the new iPhone 5 in a record 101 countries in the past quarter”.

    Considering an average of 2 official carriers (here in Spain we have 3 carriers: Vodafone, Movistar and Orange but, in France, Germany and UK there are an average of 4 carriers) so, for simplicity, let’s consider just an average two carriers per country.. 101 countries x 2 carriers= 202 carriers who almost contemporarily rolled out the new iPhone 5 the past quarter and that can also offer to customers the 4/4s.

    If every one of those 202 operators had sold in past three months only 300.000 iPhones each, that alone, gives the shivering sum of 60.600.000 iPhones.. Considering the unlocked iPhones sold in the same time span in the more than 400 stores all around the world and saying that only 2 million devices were sold in those stores, that gives me a gross total sum of: 62.600.000 iPhones sold worldwide in the past quarter.
    Now: 62.600.000 (World)+ 20.500.000 (America)= 83.100.000
    (yes friends, if my math has any sense, Cupertino may have sold over eighty three million devices in 90 days).

    But I don’t want to be naive so now, I want to remove to my numbers another huge 10% while considering that among the 101 countries there is China (big) but also Bahamas (very small) and that there are been very serious supply constraint in the beginning of the iPhone 5 sales. 83.100.000-10% = 75.545.454.

    But If In your opinion I am now being too naive and your you prefer to subtract a 15% instead of a 10%, that will lead us to the number of 72.260.869… Equally not bad…

    Conclusion: After averaging, low balling, reducing, Apple could have sold over 75 million iPhones in the past quarter alone.. And considering that Street consensus is now around 50/55 millions.

    Plus, yesterday Tim Cook was in China for the second time in 10 months… For what?? Maybe China Mobile??? Who knows…

    Here I have deliberately omitted other Apple things that earn billions every month such as the iPad, AppStore and the Mac not to mention what is in the pipeline and I can’t forget the 500 million active iTunes account (almost the 10% of the entire world population).

    • Ryan J Pulliam

      Very interesting write-up. What do you think Horace?

      • Horace Dediu

        I don’t believe Verizon shipped 8 million but rather about 5.3 million with Sprint 2.5 simply based on historic pattern. As far as the other operators, I can’t make estimates. The roll-out to many operators is a crucial piece of the puzzle but we just don’t know how many were delivered to each operator due to production constraints.

      • David S. Matrecano

        Thank you for the “very interesting write-up”… Now let’s wait and see on January 23rd if it is also true and not only interesting.. LOL

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  • Anon

    GOOD SIGN: Take a look at this!! “Foxconn December revenues hit monthly record”

  • Jeff G

    Horace, as long as you are succumbing to forecasting pressure (ha ha?) I was wondering if you would mind also updating the scatter graph/ regression type chart which shows the stock price as a function of $Billions in cash/equivalents?

    • Jeff g

      Using a simple 5 x $1billion/cash multiplier I estimated on the last charts… Current fair value would be worth $600/share

  • Anon

    Today AAPL at $488 – this is crazy!!! What are your thoughts on this Horace?

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