I projected Apple's (AAPL) September quarter's EPS would be $8.26 on revenue of $38.1 billion, up 5.9% year over year. The company's actual EPS was $8.26 with revenue of $37.5 billion, up 4.2%. This was after I projected Apple's June quarter's EPS would be $7.47 on revenue of $36 billion, up an estimated 2.8%. The company's actual EPS was $7.47 with revenue of $35.3 billion, up 0.9%.
For both quarters I was high on my iPhone unit estimates, was too low in both quarters on my gross margin projection but was too high then too low for my iPad unit estimate. On share counts, I was too high for the June quarter but was within 134 thousand, or .01%, of the 909.131 million in the September quarter.
I have been following Apple for over ten years first as a buy-side analyst and now independently. My model covers over ten years and for the past seven quarters I have been submitting my estimates to Fortune magazine to be tracked against Street and independent analysts.
I have hit Apple's EPS the past two quarters, been the leading independent analyst in three of 14 categories and in the top 6 10 of 14 times. I have also been in the top 10 six times out of 14 categories when measured against all analysts.
September 2013 quarter:
Hit EPS of $8.26
8th of 22 Independent and 8th of 44 all analysts for Revenue and EPS
1st of 22 Independent and 1st of 44 all analysts for All Categories
June 2013 quarter:
Hit EPS result of $7.47
1st of 23 Independent and 9th of 57 all analysts for Revenue and EPS
10th of 23 Independent and 30th of 57 all analysts for All Categories
March 2013 quarter:
- 4th of 25 Independent and 17th of 62 all analysts for Revenue and EPS
- 5th of 25 Independent and 14th of 62 all analysts for All Categories
December 2012 quarter:
- 8th of 29 Independent and 29th of 68 all analysts for Revenue and EPS
- 11th of 29 Independent and 28th of 68 for All Categories
Sept. 2012 quarter:
- 3rd of 17 Independent and 15th of 37 all analysts for Revenue and EPS
- 1st of 17 Independent and 7th of 37 all analysts for All Categories
June 2012 quarter:
- 6th of 34 Independent and 39th of 68 all analysts for Revenue and EPS
- 3rd of 34 Independent and 35th of 68 all analysts for All Categories
March 2012 quarter:
- 2nd of 57 all analysts for Revenue and EPS
- 4th of 57 all analysts for All Categories
For the December quarter my initial estimates are $57.5 billion for revenue, 37.3% for gross margin and $14.05 for EPS. This compares to guidance of $55 to $58 billion in revenue, 36.5% to 37.5% for gross margin and based on the various components of the company's guidance the "guided" EPS range is $12.98 to $14.27 with a mid-point of $13.62.
December quarter revenue and EPS estimates
I am estimating revenue of $57.5 billion, up 5.5% year over year, which is close to the high-end of the $55 to $58 billion guidance. I derive this from both a bottoms-up and tops-down analysis focusing on iPhones and iPads, which is further down in the note.
For the past three quarters since Apple has been giving a range of revenue guidance, its actual revenue has been between below guidance by $177 million to $603 million above it. While $57.5 billion is $500 million below the high-end that is only off by 0.9%.
I am also basing my revenue projection off of the two previous years quarter-over-quarter growth rate. At $57.5 billion, revenue will increase 53% quarter over quarter, essentially the same as last year's sequential growth of 52% and lower than the 64% two years ago when there were 14 weeks in the December quarter.
I am estimating gross margins to be 37.3% vs. guidance of 36.5% to 37.5%. For the past three quarters, actual gross margins have essentially come in at high-end of guidance. Note that while March 2013's quarter gross margin was 37.5% vs. the high-end of 38.5%, Apple took additional warranty accruals that lowered gross margins by 95 basis points.
Gross margins also seem to have stabilized and while small, the additional amount of deferred revenue gives management better visibility into the next quarter's results. I believe it is worthwhile to be a bit below the high-end as gross margins could come in the middle or lower half some quarter and it is a major swing factor on EPS.
When you model the low-end of the various guidance components the company provides, EPS comes in at $12.98 when using 904 million shares, 5 million lower than September quarter's 909 million. When you use the high-end of guidance components, EPS is $14.27 with a mid-point of $13.62.
Before September quarter's results were announced, the Street was projecting revenue of $55.65 billion and EPS of $13.86. I am projecting EPS of $14.05, which is 2% higher than last year's $13.81.
|June quarter||September quarter||December quarter|
|Revenue ($ bil.)||$33.5-$35.5||$35.3||$34-$37||$37.5||$55-$58||$57.5|
|iPhone units (mil.)||31.2||33.8||57.0|
|iPad units (mil.)||14.6||14.1||25.5|
iPhone estimate of 57 million units for the December quarter
Apple sold 33.8 million iPhones in the September quarter with 3.3 million of them coming from additional units in the channel. When you adjust for the channel fill, the 30.5 million units was an increase of 17% year over year and a decline of 4% quarter over quarter (and compares to a quarter-over-quarter decline of 1% a year ago).
In last year's December quarter, the 46.3 million iPhones that were sold (adjusted down by the 1.5 million channel fill) increased 77% quarter over quarter. I am assuming that there will be 1 million units of channel fill in the December quarter (there was 1.5 million a year ago) with total sales of 57 million. The subsequent 56 million of sell-through would be an 84% increase quarter over quarter.
I am estimating that Average Selling Prices (ASPs) at $575 will be essentially the same as the September quarter's $577 and generate revenue of $32.8 billion, up 7% year over year, and be 57% of total revenue (vs. 56% a year ago).
The iPhone 5s has had significant lead-times since it was available on September 20, especially the Gold models. Here is a link to a Google Doc where I have been tracking iPhone 5s lead-times since September 20. While this doesn't provide any unit numbers, it could be worthwhile when comparing the 5s lead-times to the iPhone 5 lead-times from a year ago to determine how fast Apple is catching up to demand.
iPad estimate of 25.5 million units
Apple sold 14.1 million iPads in the September quarter which was an increase of 2% year over year when adjusted for the extra 200,000 in last year's channel inventory. It was also an 8% decline quarter over quarter vs. last year's decline of 13%.
In last year's December quarter, the company sold 22.9 million iPads which was an increase of 48% year over year and 65% quarter over quarter. I am assuming that Apple can sell 25.5 million iPads which would be an increase of 12% year over year and 81% quarter over quarter.
I am estimating that ASPs will be $440, essentially unchanged from September's $439, and will generate $11.2 billion or 20% of total revenue which is the same as last year.
A price target of $630 seems reasonable
Calendar 2013 EPS of $39.87 would be a decline of 10% from last year's $44.10, but it does appear that calendar 2014 EPS should rebound. While I haven't run detailed numbers yet with larger screen iPhones being the biggest revenue swing factor (I'm not counting on an iWatch or television to generate much if any revenue in 2014) and stable to slightly up gross margins EPS could increase by 5% to 10% next year.
With the shares trading at 13x on a fairly stable $40 in EPS growing at 5% to 10% organically combined with the share count decreasing about 4% on the current share buyback plan, the stock doesn't seem to have much downside with upside to $630 based on a PE multiple of 14x on EPS of $45.
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