Apple Fiscal 1Q 2013 Estimate

This time I will definitely take chances and publish my estimates for Apple earnings for the Christmas 2012 Quarter (commonly known in Apple terminology as the 1st fiscal quarter of 2013.

This is definitely a challenging task as this quarter brings a lot of uncertainty and a lot of rumors have been circulating.
But if you ignore the rumors there are still some facts that deserve consideration.

First here come the numbers and I will detail the facts and supporting assumptions that I used.

Mac – the PC market is shrinking, even if Apple share of it is growing. Only laptops were really available during this quarter so I plan lower unit sales than last year by about 7%.

iPhone – this is the wild guess and probably the number with the highest range of estimates. I based my guess (this really end up being a guess really) on the fact that Apple increase his manufacturing capability year over year according to the number of devices they plan on selling. Increasing manufacturing is a very expensive proposition for the company so I’m sure they take this very seriously. I estimated a 50% increase compared to last year number.

iPad – it will all depend on how many iPad mini apple was able to produce. those devices were sold as soon as they were hitting the stores, they could not keep any inventory. So they probably sold as many as they could produce. Let’s assume 10 millions iPads mini and 16 iPads (that’s just 2 millions more than last quarter). Of course the average price goes down accordingly.
This number may actually be a little low.

iPod – down 25%.

Music/Peripherals/Software – I see those growing according to the rest of the devices sales and in line with previous years.
Music 40%
Peripherals 20%
Software 7%

Gross margin at 40% and Tax rate at 25% sound reasonable but those rates may seriously alter the Net income. Getting the revenues right is not enough to be on target with Net income as last quarter demonstrated.

End result:

Revenues a little short of $60B and EPS at $15.5. Those are aggressive numbers but we will know by Wednesday what the reality is.

Can the Euro disappear?

I keep hearing economists and analyst debating about the future of the Euro and one thing always strikes me – they never take into consideration the psychological factor attached to changing your national currency.
Of course most of the people commenting are americans and for them abandoning their currency is simply inconceivable. The Dollar is king and will remain that way, there is no question.
For most of the people in the 17 countries that participated in the currency change it was a really really big deal. Abandoning your currency is like giving up part of your national sovereignty, it’s a serious business, certainly not something that can be debated casually like we can witness it almost daily.

For the last 60 years most of european politicians have been working at building Europe, often having to fight the public opinion to make progress. Adopting the Euro was a major major achievement, logistically of course but even more psychologically.
10 years later the public has accepted this idea, it’s certainly not something that will be undo casually because of economical issues.

Maybe one country can leave the Euro but I simply cannot conceive that European leaders will let the Euro disappear. There are many many other steps before this happens. Of course nobody want to take those steps because they are painful (talk to the greek about that) but they will happen before we see the Euro disappear.

Apple vs EPEAT – behind the scene

Interesting game of chicken between Apple and EPEAT.
Let’s explain a little. Apple makes computers and computers need to be recycled when we stop using them. But Apple makes innovative products with a design that sometimes goes behind what has been done (and recycled before). The latest MacBookPro Retina display is a good example of that, it features a few things that have not been done before (like a battery glued to the case).
EPEAT is one of those independent companies hired to rate the environment friendliness of computers, they put a label that guaranty a certain level of compliance.
Of course when a government agency want to buy a computer it needs to have that certification otherwise it’s just impossible to get it through the door.

Now let see how things play out.
- Apple cannot get EPEAT to certify their latest MacBookPro with Retina display. Not because that thing is treating the wellbeing of our environment but because it uses some techniques that are simply too new.
- Apple remove all of its product from EPEAT.
- Government agencies start complaining big time (they want their Macs so I can feel their pain).
- Background discussions take place.
- Apple apologize for making a mistake by removing their products from EPEAT and join again.

What you are not told is that in the meantime and without any publicity the MacBook Pro is now gold certified by EPEAT (after being previously rejected).
Interesting way to get what you want through an apology.

iPhone 5: sooner than later

I have a personal theory about the upcoming iPhone 5 release. I see it coming sooner than later.
The rational beyond that is based on a few facts:
- Apple can be worried about their Q3 2012. If the iPhone 4S sales starts to slow down, having a product introduction would be a good way to boost the revenues.
- Every time a new Apple product is released there is a period of approximatively 2 months when this product is under some serious supply constraints. The latest to date that experimented this shortage of supply is the iPad 3. It has been available after a delay for at least 2 months. It was the same for the previous iPhone.
- iPhone 5 is a product that is expected to get a lot of success because of the renewal business. People who already use an iPhone and are waiting for the iPhone 5 to upgrade their old phone.
There are no numbers to estimate that market but a little survey is enough to indicate that it’s a big number of devices.
- The previous years sales number also shows that a lot of iPhones (and smartphones in general) find their ways under the christmas tree. Last year the christmas quarter showed a very large increase in iPhone sales.

So it would not be very smart for Apple to be supply constrained by 2 simultaneous events (renewal and christmas), that’s why I would not be surprised to see an announcement of the new iPhone 5 at the end of August or very beginning of September, instead of end of October.
That way Apple can work their way through the supply constraint due to renewal purchases through September and October. And do it all over again for Christmas in November and December.
That would be smart.

Shame on Nielsen

I guess we can all agree that he core business of a company like Nielsen is to compile, analyze and present numbers. So, how can they explain this chart.

Screen shot 2012 07 13 at 11 48 24 am1

Nothing really overly complicated here, this is a chart of the market share of the different actors of the US cellphone market.
The problem is that the chart does not matches the numbers, really not at all. Android should have 50% of the area and the area dedicated to RIM is almost as large as the one allocated to RIM.
The correct chart looks like that and you can clearly notice the difference.

So, shame on Nielsen for presenting this chart in a completely misleading way. It’s their business to crunch numbers, can we still trust them to do that?


JPMorgan vs Microsoft

What do they have in common? Apparently not much except that they recently announced some big losses.
In JPMorgan’s case, it is the result of some very bad investments that went unnoticed. I guess that kind of things happen when you are in the investment business.
For Microsoft it’s the result of an investment made 5 hers ago in an internet advertising company.
JPMorgan has estimated the amount of money lost between $2B and $4B.
Microsoft did even better with a write off over $6B.

What really got me thinking is that in the case of JPMorgan the story really made a very big deal. So big that the CEO had to appear in from of congress twice.
Strangely enough Microsoft misfortune went pretty much unnoticed even if it’s much larger. Why that?
In both cases the losses are the end result of bad investments, so why should they be considered differently.
Microsoft has consistently lost money on every internet venture they got involved into. Their online division has already lost more than $5B (that was before the last announcement). If Microsoft online businesses were independent startups they would have been forced to shutdown a long time ago because no venture capitalist would accept to loose that much money. Still, does not matter. Nobody cares.

Quite striking, especially if you put the two events in perspective.