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Estimating Apple’s Second Calendar Quarter

Apple reports second calendar quarter results in about a week. I propose the following estimates:

Fiscal Q3 2017:
Rev ($B) 45.321
EPS ($) 1.62
iPhone (units) 41 million
iPad (units) 9.8 million
Mac (units) 4.35 million
Watch (units) 2.5 million
Services ($) 7.2 billion
Other products ($) 2.6 billion
Gross margin (%) 38.4

The revenue estimate is visualized in relation to guidance (revenue between $43.5 billion and $45.5 billion) and shown in the context of previous actual revenues below:p

The estimates are also consistent with additional guidance provided:

  • Gross margin between 37.5% and 38.5%
  • Operating expenses between $6.6 billion and $6.7 billion
  • Other income/(expense) of $450 million
  • Tax rate of 25.5%

The estimates (and guidance) suggest modest growth of 7% in revenues and 13.7% EPS. The predictability of the quarter suggests that attention will mostly be focused on guidance for the next quarter.

Expectations can vary quite a bit because of the effects of a new launch. The product mix, pricing and timing are all unknown at this time.

What is known however is that the customer base for Apple is increasing and loyalty is higher than ever. What I sense, coming from very few data points, is that there are more iPhones in use than ever before. A few years ago when the market was less saturated it was easy to assume that commodity Android phones and tablets would surge and swamp iPhone/iOS usage.

This has not happened, indeed the data suggests that iOS usage is stronger than ever and that there are many more “switchers” moving from Android to iOS than vice-versa.

This may surprise some but if we look at the PC market, a similar phenomenon has been taking place for years. Mac usage grows and Macs are more visible and valuable than PCs.

It’s important to note that in the latter, post saturation stages, the markets for both phones and computers are increasingly driven by brand value. This resistance to commoditization is due to buyers’ perceptions of quality moving beyond utility and of the prioritization by buyers of new measures of performance. These new measures defy measurement.

Much of what is therefore required of market analysts is intuition.

  • Space Gorilla

    “What is known however is that the customer base for Apple is increasing and loyalty is higher than ever.”

    So clearly Apple is doomed. Dooooooooomed 🙂 I imagine the Resident Asymco Troll and his sidekick will stop by shortly to confirm that Apple is doomed.

    • klahanas

      I have no idea what you’re referring to. It might include me.

      As for myself I generally don’t comment on business matters, but this makes it seem that you desire a “cheerleaders only” party. Wonder why that is…? Are you a stockholder, employee, or supplier, or something?

      I will comment to counter bs, which you often have in abundance. Your post above notwithstanding.

    • art hackett

      Holy Sidekick Batman!! To the Troll Cave…..

  • Childermass

    If the first choice of a phone is sufficiently opaque to be considered random, then the stickiness of Apple is the key differentiator on second and subsequent purchases. There will be those who like ‘sticky’ — joined up everything — and those who don’t. The question then becomes how many people like to be part of a joined up system and how many do not. The first group define Apple’s ultimate market, and the second the market for everyone else.

    • klahanas

      Very sound and logical. When stickiness is associated with lock in (an admitted strategy) then it has a sinister tone. “Warm smell of colitas…”

  • Vicious Cur

    People used to be proud to show off their Android phones. Now they apologize for them in the presence of an iPhone.
    • “I’m hard on phones so I bought a cheap one.”
    • “It’s not a great phone, but it was cheap.”
    • “My next one will be an iPhone.”

  • Sacto_Joe

    From a strictly AAPL point of view, all eyes will be on Apple’s guidance for the present quarter. IMHO, anything above last year’s actual numbers will be seen as a distinct positive due to the negative assumptions that have proliferated lately concerning production bottlenecks for the “anniversary” iPhone.

    Of course, all this concern around the availability of the “iPhone A10” will be misplaced. From the larger POV, the iPhone A10 will be a shining example of how Apple is still at the cutting edge of high quality tech sold on a massive scale.

  • Foolcat Vincent

    Fiscal Q3 2017 est:
    Rev ($B) 45.321
    EPS ($) 1.62
    iPhone (units) 41 million
    iPad (units) 9.8 million
    Mac (units) 4.35 million
    Watch (units) 2.5 million
    Services ($) 7.2 billion
    Other products ($) 2.6 billion
    Gross margin (%) 38.4

    Fiscal Q3 2017:
    Rev ($B) 45.4
    EPS ($) 1.67
    iPhone (units) 41 million
    iPad (units) 11.4 million
    Mac (units) 4.3 million
    Watch (units) ?
    Services ($) 7.26 billion
    Other products ($) 2.7 billion
    Gross margin (%) 36.9