Among a small investor's most potent resources are patience and knowledge. I agree. For long-term shareholders, today's price presents an excellent entry opportunity.
Most smartphones are sold through carriers. Carriers assign a high value to the iPhone because it reduces customer churn rates and increases carrier satisfaction among customers. This is why Verizon came to the table for an iPhone deal after originally passing on the product, why Sprint signed on the dotted line for a deal and why T-Mobile will add the iPhone most likely within the next 12 months.
The iPhone has yet to be made available on the world's largest carrier (China Mobile) and there are other high population regions that have yet to be explored.
By the way, the iPhone does not have a 70% gross margin. Average margin runs about 50% on the line. Much of Apple's gross margin is delivered by supply chain mastery as well as strategic partnerships with key component suppliers in which Apple invests in production capacity to provide the components. Apple also develops iOS, saving the costs of a licensing fee and develops its own chips. These cost savings contribute to the gross margin outcome.
Until the iPod boom in 2003, which followed the opening of the iTunes Music Store and the release of iTunes for Windows, Apple was a single product line company - the Mac line of personal computers. Apple's Intel transition revived the Mac line and in 2007 Apple released the iPhone.
The company now has the greatest revenue diversity across product lines it has ever achieved in its history. About 80% of Apple's revenue this fiscal year will be derived from the iPhone and iPad lines. But the iPad is only now emerging from its nascent phase of global market development and Apple continues to expand its geographic footprint.
Understanding Apple's growth and Apple's growth potential is best gauged by observing the growth in the company's customer base. The company is approaching one-half billion iTunes accounts backed by credit cards and has yet to launch serious customer development efforts in India, Brazil and Russia. There are plenty of territories in the Asia-Pacific region and the Americas to fuel continued customer relationship growth for the next several years.
Not only is Apple the largest mobile device maker on the planet, Apple is also the world's largest distributor of commercial music and a global retailer with the highest sales per square foot of any retail chain.
Tim Cook remarked in the September conference call with analysts about the high percentage of customers that own multiple Apple-branded devices. Yield per customer for Apple is far more important than the incidental sales on any one individual product in isolation from the other products the company provides.
Apple's high margin is delivered not only by supply chain mastery, but also from developing their own chips, developing their own operating systems and selling to customers through the company's own channels, including the retail stores which allows for the savings on retail margin otherwise paid to 3rd parties.
Because the retail stores are the company's primary marketing, advertising and service centers, Apple saves hundreds of millions of dollars each quarter on traditional advertising expenses and this allows the company to keep operating expenses below 10% of revenue. Apple isn't highly profitable because of high product prices. Apple is highly profitable by reducing expenses in all areas of its operations while building a broad and diverse global customer base.
In Apple's fiscal year ended in September, the company sold over 183 million iPhones and iPads. That was an increase of 75% over the prior year in the number of units sold. In the current fiscal quarter, Apple will sell in the range of 80 million iPhones and iPads. In the US, sales of all iPhone models combined will reach close to 50% market share and well over 50% revenue share. Apple's smartphone revenue share in the US will be greater than the smartphone revenue of all competitors combined.
In the current fiscal year Apple will achieve about 40% revenue growth. The growth rate will be close to last fiscal year's 44.58% rise in revenue. The revenue growth rate may moderate slightly due to the decline in iPod sales and single-digit revenue growth from the Mac line. Even with single-digit revenue growth, the Mac will gain both revenue share and market share in the domestic and global markets.
The carriers pay high subsidies to Apple because the iPhone reduces customer churn and iPhone customers tend to have higher levels of carrier satisfaction. This is why Verizon came to the table for a carrier deal with Apple and why Sprint followed closely behind. T-Mobile will most likely be added as a 4th national carrier within the next 12 months.
Apple added a second authorized carrier on China's mainland last March. With two carriers offering the iPhone on the mainland through the regional holiday shopping season this February, the Asia-Pacific region will deliver solid revenue and earnings growth for Apple in both the December and March quarters. Shipments to the mainland carriers will commence later this month.
Brazil, India and Russia remain virtually untapped for Apple product sales. Continued expansion of the company's product sales presence in new markets will support satisfactory revenue and earnings growth rates for the next few years.
Elasticity of demand is a challenge for Android handset makers. There's little to differentiate competing products using the same operating system and common components. Market share is rarely gained without price and margin capitulation and inventory becomes antiquated quickly. All market share is not created equal and unit sales do not necessarily provide for satisfactory levels of profit.
The iPad mini is a clear winner with consumers this quarter and will have a material and positive impact on the quarter's overall results. I also expect a strong unit sales performance during this coming spring's education buying season.
Apple performed very well in the December quarter last fiscal year. Please remember the 14th week was added to the end of the quarter to align the fiscal quarters closer to calendar quarters. Ordinarily, Apple's fiscal quarters are 13 weeks long. Each year, because of calendar creep (365 is not wholly divisible by 7), the fiscal quarters move one day away from the calendar quarters. In leap years the impact is a two-day move away from calendar quarters. Every 5 or 6 years (based on the number of leap days in the multi-year period) an extra week is added to FQ1. That extra week encompasses the immediate post-Christmas shopping week. Most of that high volume shopping week will be included in the December quarter this fiscal year. Apple's fiscal quarters always end on a Saturday.
You make a valid point on the number of weeks the iPhone 4S was available for sale last year in the December quarter. But because the iPhone will represent 50% or more of Apple's revenue in the quarter, supply will heavily influence reported unit sales. Supplies of the iPhone 4S were constrained into the end of the quarter. Apple books sales to authorized carriers when ownership of the devices shipped is transferred to the carrier, not when the carrier sells the device to the consumer or end user.
The higher the unit shipments to carriers this quarter due to higher rates of production, the higher the reported unit sales in the quarter.
Please look to Apple's results in the June quarter of FY2011 for reference. In that quarter Apple kept iPhone production levels high into the first few weeks of the period. Last fiscal year the iPhone 4S delivered extraordinarily high margin, but peak demand ended in January. I expect the iPhone 5's new form factor to maintain global interest longer than the handset that preceded it.
In the September quarter conference call with analysts, management mentioned anticipation of the iPad mini adversely impacted iPad unit sales in the quarter. With a full complement of iPad products heading into the summer, I expect the strongest rates of revenue and earnings growth to occur in the final two quarters of the fiscal year. The extraordinarily high gross margin delivered by the iPhone 4S last year will reduce the rates of earnings growth in the December and March quarters this fiscal year.
The demand backlog for the iPhone 4S coming out of the December quarter was filled in January. However, supplies remained constrained in the Asia-Pacific region, particularly on China's mainland, into the Lunar New Year gift buying season. China Telecom was not added as a carrier until March.
Commencing shipments to the two authorized carriers on the mainland as early as this quarter will assist in boosting unit sales growth rates in both the December and March quarters. The Lunar New Year celebrations begin in February. This provides additional time to adequately address demand for product in the Asia-Pacific region.
That's a very good point. Apple's growth is driven primarily by the iPad and iPhone lines. The iPad has been available in the market for less than three years and the iPhone has been in the market less than six years.
There are large economic regions including India, Brazil and Russia that remain virtually untapped for product sales. Much of Apple's growth over the past three years has been fueled by geographic expansion and there are plenty of opportunities for continued geographic expansion over the next few years.
I expect solid but not spectacular earnings growth in the December quarter. Apple's ability to ramp production to meet increasing demand is the most important issue to be addressed in the quarter. Apple ended the December quarter last year with constrained supplies of the iPhone 4S. Consequently, the company lost January unit sales opportunities in the Asia-Pacific region. Apple is apparently ramping production to provide for big unit shipments into the Asia-Pacific region this quarter. The higher the unit shipments, the higher the gross margin in the quarter and the greater the unit sales growth for the iPhone device line in the October through March six-month period.
I've cautioned for weeks historical AAPL trading patterns in and around earnings may change dramatically. My view is the best approach is to follow the company's fundamentals, the well-established price/earnings valuation range and provide sufficient time to achieve a desired outcome while withstanding periodic share price volatility.
Apple's highest rates of year-over-year earnings growth this fiscal year will occur in the latter half of the period.
Price and margin capitulation to gain or sustain market share is a clear sign an enterprise's (or industry's) pace of production innovation is no longer satisfying the needs and demands of users.
This is why the Android v. iOS comparisons are invalid and lead to gross misunderstandings about Apple's primary product markets. The iPhone 4, in its 3rd year of release, still commands a high subsidy from carriers. Conversely, Samsung is spending heavily on advertising and price promotions to clear inventory of smartphone handsets in the current quarter.
Android is an amalgamation of handset device makers using a common series of OS releases because the cost of the OS is considered minimal, not because the OS offers a superior experience for users.
Microsoft is stepping in as a hardware device maker because lack of device margin and global price competition are driving both HP and Dell from the consumer PC market. Microsoft will spend billions convincing consumers to purchase a Surface tablet while the global Windows PC market continues to economically implode.
Last Friday I was quite surprised by the size of the crowd hovering around the iPad display at my local Best Buy. The iPad mini is emerging as a real winner with consumers this holiday season.
Why Apple Will Beat The Street [View article]
Among a small investor's most potent resources are patience and knowledge. I agree. For long-term shareholders, today's price presents an excellent entry opportunity.
Why Apple Will Beat The Street [View article]
Most smartphones are sold through carriers. Carriers assign a high value to the iPhone because it reduces customer churn rates and increases carrier satisfaction among customers. This is why Verizon came to the table for an iPhone deal after originally passing on the product, why Sprint signed on the dotted line for a deal and why T-Mobile will add the iPhone most likely within the next 12 months.
The iPhone has yet to be made available on the world's largest carrier (China Mobile) and there are other high population regions that have yet to be explored.
By the way, the iPhone does not have a 70% gross margin. Average margin runs about 50% on the line. Much of Apple's gross margin is delivered by supply chain mastery as well as strategic partnerships with key component suppliers in which Apple invests in production capacity to provide the components. Apple also develops iOS, saving the costs of a licensing fee and develops its own chips. These cost savings contribute to the gross margin outcome.
Why Apple Will Beat The Street [View article]
Until the iPod boom in 2003, which followed the opening of the iTunes Music Store and the release of iTunes for Windows, Apple was a single product line company - the Mac line of personal computers. Apple's Intel transition revived the Mac line and in 2007 Apple released the iPhone.
The company now has the greatest revenue diversity across product lines it has ever achieved in its history. About 80% of Apple's revenue this fiscal year will be derived from the iPhone and iPad lines. But the iPad is only now emerging from its nascent phase of global market development and Apple continues to expand its geographic footprint.
Understanding Apple's growth and Apple's growth potential is best gauged by observing the growth in the company's customer base. The company is approaching one-half billion iTunes accounts backed by credit cards and has yet to launch serious customer development efforts in India, Brazil and Russia. There are plenty of territories in the Asia-Pacific region and the Americas to fuel continued customer relationship growth for the next several years.
Not only is Apple the largest mobile device maker on the planet, Apple is also the world's largest distributor of commercial music and a global retailer with the highest sales per square foot of any retail chain.
Tim Cook remarked in the September conference call with analysts about the high percentage of customers that own multiple Apple-branded devices. Yield per customer for Apple is far more important than the incidental sales on any one individual product in isolation from the other products the company provides.
Apple's high margin is delivered not only by supply chain mastery, but also from developing their own chips, developing their own operating systems and selling to customers through the company's own channels, including the retail stores which allows for the savings on retail margin otherwise paid to 3rd parties.
Because the retail stores are the company's primary marketing, advertising and service centers, Apple saves hundreds of millions of dollars each quarter on traditional advertising expenses and this allows the company to keep operating expenses below 10% of revenue. Apple isn't highly profitable because of high product prices. Apple is highly profitable by reducing expenses in all areas of its operations while building a broad and diverse global customer base.
Why Apple Will Beat The Street [View article]
In Apple's fiscal year ended in September, the company sold over 183 million iPhones and iPads. That was an increase of 75% over the prior year in the number of units sold. In the current fiscal quarter, Apple will sell in the range of 80 million iPhones and iPads. In the US, sales of all iPhone models combined will reach close to 50% market share and well over 50% revenue share. Apple's smartphone revenue share in the US will be greater than the smartphone revenue of all competitors combined.
In the current fiscal year Apple will achieve about 40% revenue growth. The growth rate will be close to last fiscal year's 44.58% rise in revenue. The revenue growth rate may moderate slightly due to the decline in iPod sales and single-digit revenue growth from the Mac line. Even with single-digit revenue growth, the Mac will gain both revenue share and market share in the domestic and global markets.
The carriers pay high subsidies to Apple because the iPhone reduces customer churn and iPhone customers tend to have higher levels of carrier satisfaction. This is why Verizon came to the table for a carrier deal with Apple and why Sprint followed closely behind. T-Mobile will most likely be added as a 4th national carrier within the next 12 months.
Apple added a second authorized carrier on China's mainland last March. With two carriers offering the iPhone on the mainland through the regional holiday shopping season this February, the Asia-Pacific region will deliver solid revenue and earnings growth for Apple in both the December and March quarters. Shipments to the mainland carriers will commence later this month.
Brazil, India and Russia remain virtually untapped for Apple product sales. Continued expansion of the company's product sales presence in new markets will support satisfactory revenue and earnings growth rates for the next few years.
Why Apple Will Beat The Street [View article]
Elasticity of demand is a challenge for Android handset makers. There's little to differentiate competing products using the same operating system and common components. Market share is rarely gained without price and margin capitulation and inventory becomes antiquated quickly. All market share is not created equal and unit sales do not necessarily provide for satisfactory levels of profit.
Why Apple Will Beat The Street [View article]
In addition to strong unit sales, the iPad mini will deliver attractive gross margin. Gross margin will rise as production scales higher.
Why Apple Will Beat The Street [View article]
The iPad mini is a clear winner with consumers this quarter and will have a material and positive impact on the quarter's overall results. I also expect a strong unit sales performance during this coming spring's education buying season.
Why Apple Will Beat The Street [View article]
Apple performed very well in the December quarter last fiscal year. Please remember the 14th week was added to the end of the quarter to align the fiscal quarters closer to calendar quarters. Ordinarily, Apple's fiscal quarters are 13 weeks long. Each year, because of calendar creep (365 is not wholly divisible by 7), the fiscal quarters move one day away from the calendar quarters. In leap years the impact is a two-day move away from calendar quarters. Every 5 or 6 years (based on the number of leap days in the multi-year period) an extra week is added to FQ1. That extra week encompasses the immediate post-Christmas shopping week. Most of that high volume shopping week will be included in the December quarter this fiscal year. Apple's fiscal quarters always end on a Saturday.
You make a valid point on the number of weeks the iPhone 4S was available for sale last year in the December quarter. But because the iPhone will represent 50% or more of Apple's revenue in the quarter, supply will heavily influence reported unit sales. Supplies of the iPhone 4S were constrained into the end of the quarter. Apple books sales to authorized carriers when ownership of the devices shipped is transferred to the carrier, not when the carrier sells the device to the consumer or end user.
The higher the unit shipments to carriers this quarter due to higher rates of production, the higher the reported unit sales in the quarter.
Why Apple Will Beat The Street [View article]
Please look to Apple's results in the June quarter of FY2011 for reference. In that quarter Apple kept iPhone production levels high into the first few weeks of the period. Last fiscal year the iPhone 4S delivered extraordinarily high margin, but peak demand ended in January. I expect the iPhone 5's new form factor to maintain global interest longer than the handset that preceded it.
In the September quarter conference call with analysts, management mentioned anticipation of the iPad mini adversely impacted iPad unit sales in the quarter. With a full complement of iPad products heading into the summer, I expect the strongest rates of revenue and earnings growth to occur in the final two quarters of the fiscal year. The extraordinarily high gross margin delivered by the iPhone 4S last year will reduce the rates of earnings growth in the December and March quarters this fiscal year.
Why Apple Will Beat The Street [View article]
The demand backlog for the iPhone 4S coming out of the December quarter was filled in January. However, supplies remained constrained in the Asia-Pacific region, particularly on China's mainland, into the Lunar New Year gift buying season. China Telecom was not added as a carrier until March.
Commencing shipments to the two authorized carriers on the mainland as early as this quarter will assist in boosting unit sales growth rates in both the December and March quarters. The Lunar New Year celebrations begin in February. This provides additional time to adequately address demand for product in the Asia-Pacific region.
Why Apple Will Beat The Street [View article]
That's a very good point. Apple's growth is driven primarily by the iPad and iPhone lines. The iPad has been available in the market for less than three years and the iPhone has been in the market less than six years.
There are large economic regions including India, Brazil and Russia that remain virtually untapped for product sales. Much of Apple's growth over the past three years has been fueled by geographic expansion and there are plenty of opportunities for continued geographic expansion over the next few years.
Why Apple Will Beat The Street [View article]
I expect solid but not spectacular earnings growth in the December quarter. Apple's ability to ramp production to meet increasing demand is the most important issue to be addressed in the quarter. Apple ended the December quarter last year with constrained supplies of the iPhone 4S. Consequently, the company lost January unit sales opportunities in the Asia-Pacific region. Apple is apparently ramping production to provide for big unit shipments into the Asia-Pacific region this quarter. The higher the unit shipments, the higher the gross margin in the quarter and the greater the unit sales growth for the iPhone device line in the October through March six-month period.
Why Apple Will Beat The Street [View article]
I've cautioned for weeks historical AAPL trading patterns in and around earnings may change dramatically. My view is the best approach is to follow the company's fundamentals, the well-established price/earnings valuation range and provide sufficient time to achieve a desired outcome while withstanding periodic share price volatility.
Apple's highest rates of year-over-year earnings growth this fiscal year will occur in the latter half of the period.
Why Apple Will Beat The Street [View article]
Price and margin capitulation to gain or sustain market share is a clear sign an enterprise's (or industry's) pace of production innovation is no longer satisfying the needs and demands of users.
This is why the Android v. iOS comparisons are invalid and lead to gross misunderstandings about Apple's primary product markets. The iPhone 4, in its 3rd year of release, still commands a high subsidy from carriers. Conversely, Samsung is spending heavily on advertising and price promotions to clear inventory of smartphone handsets in the current quarter.
Android is an amalgamation of handset device makers using a common series of OS releases because the cost of the OS is considered minimal, not because the OS offers a superior experience for users.
Microsoft is stepping in as a hardware device maker because lack of device margin and global price competition are driving both HP and Dell from the consumer PC market. Microsoft will spend billions convincing consumers to purchase a Surface tablet while the global Windows PC market continues to economically implode.
Why Apple Will Beat The Street [View article]
Last Friday I was quite surprised by the size of the crowd hovering around the iPad display at my local Best Buy. The iPad mini is emerging as a real winner with consumers this holiday season.