After the ER: What is coming in fiscal Q4?
AAPL, Quarterly Forecasts, Earnings & Guidance
As I posted last week, I was worried that Peter would give low-ball guidance and blame it on the general economic conditions. He did not do so, which I take as a positive.
Instead, I analyze what I just heard.
Point #1:
I lost track of how many times Peter Oppenheimer and Tim Cook talked about a product transition coming in Q4 “which I can’t talk about today.”
It was given as a major reason for expecting gross margin to drop from 34.8% in Q3 to 31.5% in Q4. The other reasons, as pointed out in the call by analysts, happen every year without the drop in margin in today’s guidance - so this product transition looks like the biggest reason for the drop in margins, and the drop in margins is definitely the big reason for the very low guidance for EPS.
So what is it? Typically with Apple, a significant change in margins happens because of a change in product mix. More iPods as compared to Macs, and the margin goes down. More Macs as compared to iPods, and the margin goes up. Pretty simple.
BUT - Peter also said that he expects MORE mac sales in Q4 than in Q3 (and the total revenues is only expected to grow a little, from $7.46 billion to $7.8 billion). So it cannot be a shift from mac revenues to iPod and iPhone revenues.
As far as I can tell from today’s discussion, the new product that will be introduced in Q4 must be a new mac (or a new form factor that is included when counting mac sales) that will have a lower gross margin that the current mac product line has. That could be a mac tablet, or a combination mac mini/Apple TV, or something else.
Point #2:
Very little time was spent talking about the iPhone supply issue (which I had expected to be a major issue). In reaction to the one question on the subject, Tim Cook responded that the demand for the iPhone 3G has been staggering. He said that he was not forecasting demand, but was working hard on supply, and that the supply ramp was on its schedule. He is comfortable about having enough supply to roll out to an additional 20 countries in August.
This sounds like Apple really has been surprised with the early rate of sales of iPhone 3G. If Tim says that the manufacturing ramp-up is on schedule, then we can expect supply : demand to begin to reach equilibrium in the not-too-distant future.
I had not seen any discussion of 20 new countries coming on-line in August, and that comment made me wonder if the current shortages are being exacerbated by at least part of the current production being diverted into stockpiles for those additional new countries coming on-line.
TS2K
techstock2000 @ July 21, 2008
Great note.
On the subject of the “new product”, I can’t help believe it must be something totally new. Apple upgrades, and puts out new models of ipods, macs, and now iphones, with little change to margin. Therefore, it has to be something different.
Tablet touch computers - that would fit as something totally new. So could a expanded line of touch based ipods. But it has to be more than just computer or ipod upgrades.
Also, since the margins are decreasing, it must have a lower price point, and/or more competition. So it could also be lower cost computers. Reports have been out saying Apple already has something like 66% of the market for computers costing over $1000. So, to continue to grow their computer business, it could be a lower priced computer. And if it’s geared to the lower priced market, it makes sense it would also carry a lower margin.
Tim did say they were going after market share. This would be one way to do it. I guess we’ll know in the next month or 2, maybe less since the lower gross margin applies to this quarter as well - means it has to be introduced soon.
The only thing I see is a conversion to a whole line of true Mult-Touch products. HP has been advertising theirs (TouchSmart PC) heavily and has gotten a lot of press.
Maybe, the Touch Screen Macs are will be here just in time for Xmas.
http://www.hp.com/united-states/campaigns/touchsmart/index.html#/Main/
Cotten999 wrote:
The product transition that Peter “couldn’t talk about today” is happening between now and September 30. Maybe they will be coming by then.
S2K,
You beat me to a few things I was going to point out when I cooled down. I think folks should mark this post to return to once things calm down. I really don’t think we are going to discuss much tonight meaningfully.
I got interrupted during the CC and may have missed a few points but I believe it was Peter O who also mentioned per your Point 1. He said something to the effect that We often reduce our margin forecasts when launching new products because we recognize the costs upfront. This is always the case but looks to be overlooked by many.
I also believe he said to expect significantly more revenue in future quarters regarding the iPhone. I’ll add more as I go through this thread but I have to walk away for now. Thanks for your post I hope it gets us back on track for a while.