Apple Business Review: Product Line Margins

Apple’s overall gross margin reached 41.67%, the second highest ever.  The highest was 41.82% last Fall.  This should not come as a surprise as the iPhone continues to make up an increasingly larger percent of Apple’s total sales.  The gross margin on the iPhone continues to be well above all its other product lines (except for software).

Although Apple does not provide product line GM break-out, some intelligent guessing can be made.  Here are my estimates:

  • iPhone 59%
  • Mac 27%
  • iPod 28%
  • iTunes 10%
  • Periph 45%
  • Software 80%

A historic perspective for gross growth (iTunes, Peripheral and Software sales growth) is shown in the graph below.

Apple Business Review: Product Line Growth

Each of Apple’s individual business lines is profitable.  Last quarter only the iPod experienced negative year-on-year unit growth but still generated a positive sales growth due to higher ASP.

Here is the list of each product line and its y/y sales growth:

Unit Growth, Sales Growth

  • iPhone 131%, 124%
  • Mac 33%, 27%
  • iPod -1%, 12%
  • iTunes n/a, 27%
  • Periph n/a, 32%
  • Software n/a, 1%

Overall sales grew 49%.

A historic perspective for unit growth (iTunes, Peripheral and Software sales growth) is shown in the graph below.

Nokia vs. Apple phones business comparison shows comfortable lead for Apple

Nokia reported 21.5 million converged devices sold in Q1.  The units, share, ASP, Revenues and Operating Profits are compared in the following table.

It’s once again evident that Apple captured more profits from the iPhone than Nokia did from all its devices and services operations.

With respect to converged devices, Apple also generated more sales and had nearly triple the ASP.  Unit shares remained almost the same sequentially. Nokia did suffer more from ASP erosion sequentially as the converged ASP dropped by 24% vs. a 2.5% drop for Apple.

What is interesting from a growth perspective is that Apple’s #1 position in the share of profits from mobile phones was acquired with such a low market share.  Analyst Brian Marshall said the most interesting part of Apple’s story is the international growth of the iPhone. He believes that Apple has only acquired about 1.5 percent of its international carrier partners’ total postpaid subscription base of 525 million. For comparison, its penetration in the U.S. peaked in Sept. 2009 on AT&T with 5 percent.

Sources:

Nokia – Investors- News Release

Apple – Investor Relations

Apple continues to trade at a discount to growth

Apple’s latest earnings showed growth of nearly 90% (following a nearly 50% growth the previous quarter.)

Normally, growth like this is rewarded with a significant P/E ratio of 30 to 40.  Apple enjoyed P/E of 50 as recently as 2007.  However Apple’s P/E ratio dropped to about 22 after earnings.

Although higher than during the worst of the recession, this low P/E either reflects continuing pessimism in the overall sustainability of the economy or a continuing discounting of Apple’s potential growth.

Excluding the nearly $45/share cash and looking at a forward twelve months earnings of 15, the forward P/E is an almost embarrassing 14.

It’s possible that after a few quarters of above 50% growth Apple’s P/E and hence its valuation will return to more normal (PEG ~1.0) levels.  A P/E of 30 at today’s trailing 12 months earnings would put the stock above $350/share.

Pro analysts 51% worse than amateurs in predicting Apple's financials

via Deagol’s AAPL Model: Apple beats up everyone.

Average errors:

11.6%  Professionals

7.7%  Amateurs

—–  —————————————

51.4%  Pros error increase % on amateurs

Note: Apple beat every estimate from every analyst, amateur or professional.  More when we do the numbers.

Tim Cook "shocked" by initial demand for the iPad

On the company’s earnings call, Apple COO Tim Cook says the company is “shocked” by initial demand for the iPad. He also added, “I’m personally addicted to mine and couldn’t live without it.”

via Apple Blows Out Earnings Thanks To Huge iPhone Sales – Yahoo! Finance.

Speaking of iPad, the iPad is almost impossible to obtain in Boston area.  By reservation only.

Asymco's AAPL Model: Fiscal 2Q 2010 Final Estimates

Deagol estimates 12,594 2.77

via Deagol’s AAPL Model: Fiscal 2Q 2010 Final Estimates.

In the spirit of Deagol and Turley Muller here are my estimates for the quarter:

3mo ending Mar-2010   Rev($M)   EPS($)
——————-   ——-   ——
Apple guidance         11,200     2.12
Analysts consensus     11,960     2.44
asymco estimates 12,357 2.60

asymco Revenue breakdown:
Mac        3,918 ( 3.01M @ $1,300)
iPhone     4,500 ( 7.50M @ $  600)
iPod       1,652 (11.00M @ $  150)
Music      1,206
Software     689
Periph       393
——–  ——
Total     12,357

Income statement:
Revenue   12,357
COGS       7,458
GM         4,899
OpEx       1,533
OpInc      3,366
OI&E          50
Pre-tax    3,416
Tax        1,025
NetInc     2,391
Shrs.        920
EPS         2.60

Tavis McCourt of Morgan Keegan Predicts iPhone Sales

At the event, CEO Steve Jobs noted that iPhone sales to date now tops 50 million units. Morgan Keegan analyst Tavis McCourt points out in a research note that as of the end of December, sales to date were 41.8 million. Ergo, the company sold at least 8.2 million in the March quarter, he concludes.

Source: Barrons

How can you count on these guys for forecasts about the future when they can’t get the past right?  Total iPhones sold as announced by Apple: 42.484 million.  A more reasonable estimate is here.

Apple pre-announces at least 7.5 million iPhones sold in Q1

Today Steve Jobs stated that 50 million iPhones were sold to date.  According to SEC filings, since about 42.5 million sold as of end of 2009, it follows that about 7.5 million units shipped in the first quarter.

That number represents a 98% y/y increase in units.

Ten weeks after public release, financial web sites show incorrect data on Apple

Closing in on ten weeks since Apple’s last report where they “cleared up” any confusion about accounting rules, most financial sites still show incorrect data on their profiles for Apple.

Out of the 14 major sites I looked at, just 5 have managed to update their historical financials with the retrospective amendments freely available from Apple’s Investor Relations site.

Deagol’s AAPL Model: Ten weeks later, AAPL numbers elude financial web sites.