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Mathias Holmstrøm

 
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  • Apple: Unfortunately It Was A Disappointing Earnings Report [View article]
    Hey Macdeutsche. Thanks for taking your time to read the article a couple of times

    "Third, it's 900m, not 700m."

    Its a 700M sequential effect, which is what I am interested in.

    "Finally, it's not clear to me that why you expect 40% although you have two things lined up. Your key issue is still iPhone, you expected 53%. Given the trend of ASP, why so high? But since consensus seems to be 40%, so ok. "

    iPhone C is cheaper to produce than the iPhone 4s was last year (higher gross margin on middle-range phone).
    iPad Mini should also have a much higher gross margin.
    Further, remember that the Apple benefits from a great product mix in Q1 (lots of iPhone sales --> raises average margins).

    "Also missing would be the confirmation value that you can drive from your last forecast to last earnings. Can't you confirm a bit about your 53% by reading the financial? What does 1Q14 say about iPhone 5s/5c margin?"

    So the 53% was my previous forecast based. That would likely have been correct if the 5S costed the same to produce as the iPhone 5. However, I think it is probably $10-15 more expensive to produce.

    "Anyway, still a valid point, since same as you, and it looks like everyone expected 40%. The deferral accounts for 1.5%. So there is still a gap of 1-2%. So do I read this into what? Are they lowballing again? Is the gap genuine problem? You clearly took a position that it is a genuine problem."

    So if we look at lasts years gross margin of 40.x% and subtract the 1.5% from deferred revenue, the reamaining effect can be explained by a combo of lower margins on iPads and lower margins on Macs.
    Oct 30 09:46 AM | Likes Like |Link to Comment
  • Apple: Unfortunately It Was A Disappointing Earnings Report [View article]
    Thank you for the your comment Humble Eagles. Let me try to clarify what I imply by valuation call and what I imply by short-term effect of earnings report/guidance;

    Valuation: I attempt to assess long-term earnings/free-cash flow of Apple. Its possible I come up with a fair value of $600 even if the share price is just $530.

    Effect of earnings report: How does our valuation change now? If it was $600 before, maybe it should be reduced to $580?

    So in the above example, I actually still think Apple is undervalued, but in the short-term the share price should decline.

    As it turned out, it was exactly what happened yesterday as the share price dropped by 2%.
    Oct 30 09:35 AM | Likes Like |Link to Comment
  • Apple: Unfortunately It Was A Disappointing Earnings Report [View article]
    Thanks for you comment James.

    You make an important point with regards to the iPad Air which is an actual upgrade over the iPad 4. Also, I like that they gave it a new name. It was always a bit confusing to mention it as the 5th generation iPad (not a very catchy name).

    $577 iPhone was very much in line with what I had expected ($581). Apple's low-end phone is simply selling pretty well which reduces the ARPU.

    In terms of the $60bn - I agree its doable, but it all comes down to the iPhone. If Apple can have a perfect "no supply issues"-quarter, then they may hit iPhone sales of 56M+ - that should be enough to take revenue above $60bn. Btw, my iPhone ARPU for Q1 is $611.
    Oct 29 10:36 AM | Likes Like |Link to Comment
  • Apple: Unfortunately It Was A Disappointing Earnings Report [View article]
    Yeh I guess you could rephrase it in that way as well. I definitely agree with you, and I think the new iPad lineup is perfectly priced and positioned. However, I had just expected that the new lineup was even more profitable.
    Oct 29 10:23 AM | Likes Like |Link to Comment
  • Apple: Unfortunately It Was A Disappointing Earnings Report [View article]
    I was disappointed because I was optimistic ahead of the earnings report. Obviously the guidance/earnings report wasn't bad in terms of normal standards. Its just... I was considering going long Apple if I saw some real possibility for the gross margin to increase. However, I no longer think that's a realistic possibility.

    
    Oct 29 10:20 AM | Likes Like |Link to Comment
  • Apple: Unfortunately It Was A Disappointing Earnings Report [View article]
    Hey Alphaneria

    I think my model takes into account roughly 100 input variables when determining the proper gross margin of Apple.

    After the earnings report, I think I tweaked around 15-20 of those input variables, but since iPad and especially the iPad variables are the most important ones, I only discussed those in the article.
    Oct 29 10:15 AM | 1 Like Like |Link to Comment
  • Apple: Unfortunately It Was A Disappointing Earnings Report [View article]
    It is $900M in total deferred revenue, yes. But it is $700M in sequential effect since Apple already deferred revenue of $200M in Q4. I admit though I could have been more clear about that.

    I keep mentioning poor iPhone sales - What do you mean? I didn't talk about that at all. I think iPhone sales were impressive for the quarter and very much in line with my estimate. The guidance for next quarter though is a bit below what most people had expected.

    "final point on gross margins....they are always going to be pushed down a little bit on new product releases but over time they go back up."

    That's true for some companies where the costs of producing the services/products reduces faster than the ASP/ARPU. However, in the case of Apple, the contrary is true. Apple's best quarter is Q1 since this is where most consumers purchases the new iPhones/iPads.
    Oct 29 10:10 AM | 1 Like Like |Link to Comment
  • Apple: Unfortunately It Was A Disappointing Earnings Report [View article]
    Hey coterotie.
    Remember I am trying to replicate Apple's management model. This is not me being bullish/bearish on Apple's earnings for this quarter. Instead, it simply shows how I expect proceed in order to end up with a gross margin between 36.5% and 37.5%.
    Oct 29 10:04 AM | Likes Like |Link to Comment
  • Apple: Unfortunately It Was A Disappointing Earnings Report [View article]
    Apple has the best knowledge to provide us with the best guidance. What I learned from this guidance is that its product isn't as profitable as one could have hoped.

    Obviously they can still beat the guidance (as you point out), but that will likely be in terms of sales. If we look at in terms of profit per device, Apple is less profitable than I had expected.

    Further, I am not even valuing Apple. I am just looking isolated at the effect of the earnings report.
    Oct 29 09:55 AM | Likes Like |Link to Comment
  • Apple Beats But Treated As Second Class [View article]
    In terms of gross margin one would have expected increase an increase due to higher margins on iPad + iPhones. Deferred revenue + fx tailwinds offset some of it, but not everything.

    50M iPhone sales seems to be what Apple's expects for next quarter. Not bad at all, just below what I had expected.
    Oct 28 08:20 PM | 2 Likes Like |Link to Comment
  • Apple Beats But Treated As Second Class [View article]
    dissapointing guidance. implies iPhone sales of roughly 50M which is below analysts estiamte of roughly 55M.
    Oct 28 06:29 PM | Likes Like |Link to Comment
  • Apple Earnings Preview: It's iPhone Or Bust [View article]
    I also assumed sales of 12M iPads (or so) orginally, however given the way I interpret the 170M figure, it seems that Apple sold around 14M iPads the year.
    Personally I am also lowering my iPhone sales estimates to around 32.5M units. For next quarter, I expect guidance of revenue between 56B and 60B with gross margin in the 38-42% range.
    Oct 26 07:44 AM | Likes Like |Link to Comment
  • Can iPhone Earnings Continue To Grow In 2014? [View article]
    Michael: I agree with your view on a longer term (2-5 years), however sales seem to continue to increase, thus I don't see any reason to expect a steep decline in market share. The iPhone 5c doesn't need to be a big seller. All it needs to be is a high-margin middlerange phone.
    Oct 9 12:42 PM | 1 Like Like |Link to Comment
  • Can iPhone Earnings Continue To Grow In 2014? [View article]
    I don't use IDC forecast. I use their estimates with my own forecasts. I described my methodology in this article.
    Oct 9 12:37 PM | Likes Like |Link to Comment
  • Why Apple Didn't Fix Its Biggest Problem [View article]
    The problem with 4s atm. is that it serves as a low gross margin option for consumers in developed countries that "steals" sales from the newer phones. I would have prefered a slightly cheaper iPhone 5c that could replace both the iPhone 5 and iPhone 4s at the same time (rather than just the iPhone 5).

    Then in developing markets I believe Apple should priortize market share over profits for the short-term. The current strategy doesn't really accomplish that.
    Sep 29 05:23 AM | Likes Like |Link to Comment
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