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Month: October 2012

Hey Big Spender

In previous posts I described the patterns of asset value growth for Property Plant and Equipment at Apple and how that change has been thus far correlated to the production of iOS devices.

The analysis was based on looking at the declared value of the PP&E assets on Apple’s balance sheet. These values include depreciation so they reflect not only the “spending” on new assets but also the value lost due to wear and tear. As such it’s not a perfect measure of investment.

The better approach is to use declarations on the cash flow statement. Apple reports a specific cash flow related to PP&E: Under Investing Activities, Payments for acquisition of property, plan and equipment.

In the latest 8-K the amount for the 12 months ended September 29 the value was $8.295 billion.

Compare this with the statement in the Annual Report from one year ago:

The Company anticipates utilizing approximately $8.0 billion for capital expenditures during 2012, including approximately $900 million for retail store facilities and approximately $7.1 billion for product tooling and manufacturing process equipment, and corporate facilities and infrastructure, including information systems hardware, software and enhancements.

Compare also with the PP&E net asset value on the Balance Sheet currently at $15.452 billion but valued at $7.777 billion a year ago (an increase of $7.7 billion).

This means that Apple intended to spend $8 billion, actually spent $8.3 billion and realized a net asset gain (after depreciation) of $7.7 billion.

So there are no major surprises. The spending was only about 4% above expectations a year earlier.

The other pattern to observe is that the spending rose dramatically into the fourth quarter. The fiscal quarterly spending was:

  1. $1.32 billion
  2. $1.46 billion
  3. $2.06 billion
  4. $3.46 billion

I illustrate this pattern (and previous quarterly spending) in the following chart.

The question remains what is this $8.3 billion being spent on? Continue reading “Hey Big Spender”

The beloved hobbies of Google and Amazon

Tim Cook speaking about the Apple TV product:

For Q4 we sold 1.3 million. That is up over a 100% year-on-year. We sold more than 5 million Apple TVs during the fiscal year, which is almost double the previous year, when we sold 2.8 million. So the business continues to do very well, but if you look at the size of revenue of this business versus our other businesses, it’s quite small and so it still has the hobby label, however it’s a beloved hobby and we continue to focus on it and continue to believe there is something more there and continue to pull the string to see where it takes us.

Five million Apple TVs per year is a half-billion dollar hobby. As such it quintupled from the first year (calendar 2007).

Continue reading “The beloved hobbies of Google and Amazon”

The iPhone and Apple's Margins

As the following graph shows Apple gross margins and its operating margins have both been on a consistent upward slope since early 2006.

The reason is that the company has moved to more mobile devices as a percent of products shipped. Whereas Macs have had decent margins by the standard of the PC industry, they are not as profitable on a unit basis as iPods, iPhones or iPads. As portable or mobile products grow rapidly, it would follow that margins would as well.

However, the growth is not monotonic. There are occasional dips in gross margins. The cause is the launch of new device versions. On the following graph I show the launch times for the iPhone versions and the company’s gross margin as well as my estimates for iPhone and other product line margins. Continue reading “The iPhone and Apple's Margins”

iPad sales grew 44 percent in Q3

The iPad grew shipments at 26% y/y but “sales” as measured by sell-through were up 44%. Detail from Tim Cook’s discussion:

“The June to September [sequential change] was 17 million to 14 million…   as we had talked about in the July call, the June quarter contained 1.2 million increase in channel inventory and so … the comparison looks very different than our reported [shipment] numbers do… On a year-over-year basis, because of the year ago quarter having also a channel inventory build as we stock the channel to the [proper] level, the sell through year-over-year actually grew 44% and so the underlying sell through was extremely strong.”

Sell-through, (or “sales” vs. “shipments”) is a much better indicator of demand, obviously. Also see transcript for explanation of sequential decline (educational buying).

44% is not spectacular but it places the growth far more comfortably in the “high” bracket than the 26% units and 9% revenue growth that shipments data would indicate.

Apple's Growth Scorecard for third quarter 2012

In the parlance of developers Apple keeps “throwing exceptions.” This quarter the iPad surprised with a significant decline in sales growth. I placed a table showing the sales growth for this quarter as well as the previous 22 quarters at the bottom of this post.

Here is a quick review of each line:

  1. The iPhone returned to a more customary growth rate (which I rate as Very Good–above 50%). The quarter was bound to be quirky due to it being both a transition quarter and a launch quarter. The launch of the iPhone 5 came quite late but not too late to make a contribution. It was also widely rumored and anticipated so there was slowing of the previous generation product. I expect growth to accelerate further in the last quarter of the year.
  2. The Mac turned in a commendable 6% revenue growth (1% unit growth) on the back of the new 15″ Retina screen MacBook. The average sales price increased sequentially and the mix of portables to desktops reached a new high of above 80%. More about the Mac will be written in a future post. Continue reading “Apple's Growth Scorecard for third quarter 2012”

A limited number of The Critical Path The First Year print editions are available for purchase

The Critical Path, The First Year is now available on the Asymco Store.

  • Including DRM-free PDF and ePub downloadable files.
  • The print copies are signed.
  • Supplies are limited.

You can order  here: Asymco Store — The Critical Path Book.

Asymconf 2012 videos now available

The Asymconf 2012 videos are now available for purchase from the new Asymco Store.

The package includes 1080p HD video produced by Kevin Krautle. Multiple camera angles capture all the action. Great quality audio and hours of conversation. It’s even subtitled. Over 20 gigs of content.

But wait, there’s more. You also get Perspective stories, Audio Podcast and Transcripts all for the low, low price of $89.99. Over 20 Gigabytes of content.

I hope you enjoy it as much as we enjoyed producing it.

The next 100 million iPads

Having reached 100 million iPads shipped in 2.5 years the natural question is how long will it take for the next 100 million iPads?

The ramp of cumulative units shipped is shown below.

 

I also added the equivalent ramp for the iPhone. [The last data point for the iPad is based on an estimate of 16.5 million units in Q3 which may need revision depending on company reporting.]

The next 100 million will depend to a large degree on the success of the new iPad mini. To make an estimate we have to realize that there are several aspects of the tablet market which differ from the phone market and that therefore the predictive power for previous data is weak. Continue reading “The next 100 million iPads”