Apple has scheduled its December quarter results to be released on Monday, January 27, with its conference call at 2:00 pm Pacific Time. I estimate that the company could report $59.8 billion in revenue and $14.64 in EPS due to the iPhone 5c and 5s being launched in more countries than the iPhone 5 a year ago and iPad’s doing well. To reach $60 billion in revenue Apple will need to have sold 400,000 more iPhones or 500,000 more iPads than I am projecting. (Note that my family and I own Apple shares).
Revenue may even exceed $60 billion
Revenue guidance is $55 to $58 billion and I am projecting $59.8 billion or 3.1% above guidance. This would be a 9.6% increase from last years $54.4 billion and up 59.5% from the September quarter. In the December 2012 quarter the $54.4 billion in revenue was $2.5 billion above the $52 billion guidance or 4.8% and increased 51.6% sequentially.
Gross margin should be at the high end of guidance if not exceed it
Gross margin guidance is 36.5% to 37.5% of revenue. I am expecting it to be 37.4% since I am projecting high margin iPhones to generate 57% of total revenue, which compares to 56% a year ago when gross margins were 38.6% (compared to 36% guidance).
With management’s guidance now a range vs. a single point and the previous two quarters the actual gross margin being at or only 0.1% below the top end of guidance I believe it should wind up around the 37.5%. One key swing factor that has come into play the past few quarters is how much in warranty accruals the company decides to take. This could materially help or hurt the gross margin since it had a range of 2.1% to 3.7% of revenue in fiscal 2013. Each 1% of gross margin changes EPS by $0.48.
EPS of $14.64 would be the first quarter in a year to show growth
I am projecting $14.64 in EPS, which is above the high-end of $14.27 that Apple guided to when you calculate using all its guidance components. The holiday quarter is probably the quarter that has the greatest potential to exceed guidance (or fall short) due to the swing factors of new products being introduced, the ability of the company’s suppliers to produce them and the acceptance of them by consumers.
iPhones: Projecting 57.5 million to have been sold
Launching in additional countries and carriers at initial availability, especially China Telecom and China Unicom and NTT DoCoMo in Japan, helped fuel sales in the quarter. I checked Apple’s and wireless carriers websites for two months and lead-times shrank at about the same pace for the iPhone 5s as the iPhone 5, which indicates that there didn’t seem to be any major production issues. Also Canaccord Genuity’s survey showed that the iPhone were the top sellers at all four U.S. wireless carriers at least through November.
iPhone units of 57.5 million would be an increase of 20% year over year and 70% quarter over quarter. In the past two years the quarter over quarter unit increase has been 114% and 77% when adjusted for channel inventory. Revenue would be $34.2 billion for an increase of 12% year over year and 57% of total revenue. Average selling prices (ASPs) are estimated to increase from $577 in the September quarter to $595 in December.
Channel fill could help sales by 1-3 million units since a China Mobile deal has been announced. In Apple’s September 2012 quarter conference call it said iPhone channel inventory was below its targeted 4-6 weeks of future sales and the subsequent December quarter had 1.5 million units added to inventory (which helped increase reported sales by that amount). On its September 2013 conference call management said iPhone channel inventory was at the low-end of the targeted 4-6 weeks of demand. Depending on how many units its suppliers built balanced against sales will determine if Apple was able to increase its weeks of coverage.
iPad: Expect that 25.7 million could have been sold
The combination of the new iPad Air and Retina minis along with the original mini starting at $299 probably did make for “an iPad Christmas” as Tim Cook pronounced. At 25.7 million units this would be a 12% year over year increase and generate $12.1 billion in revenue, up 13%, and be 20% of total revenue. With almost three-quarters of people surveyed by ChangeWave indicating they would buy an iPad vs. other tablets, the iPad showing up as 6 of the top 10 selling tablets in Japan, the top pick in a Parks Associates holiday survey and top sellers at Target and Walmart on Black Friday it does look like iPads had a very good Christmas.
I am estimating that ASPs were $470 which is an increase of less than 1% year over year and up 7% quarter over quarter driven by the higher starting price of the Retina mini at $399 vs. last year’s mini at $329. This would also be a 7% quarter over quarter increase in ASPs from $439. The key variable is how many original mini’s were sold which puts downward pressure on ASPs.
Macs: Believe there could be strong growth off an easy compare
I am projecting that Apple’s Mac product line could have reached 4.825 million units sold, up 19% year over year, and generate $5.8 billion in revenue, up 5% year over year. Macs would account for 10% of total company revenue.
Last year the 4.1 million units sold were down 22% from the prior years 5.2 million. Even if the company hits my projection units sold will still be down from two years ago which isn’t surprising given the that there could be over 10 million more iPads sold this December quarter (25.7 million) vs. two years ago at 15.4 million.
Share count should drop by about 5 million
Apple needs to spend about $4 billion per quarter to reach its $60 billion goal by December 2015. If the company spent $5 billion (it spent $4.9 billion in the September quarter) at an average price of $518 there would be 9.6 million fewer shares outstanding. Assuming that the purchases occurred evenly during the quarter there would be about 5 million fewer shares.