AAPL Fiscal 4th Quarter Revenue Estimate Preview

AAPL Fiscal 4th Quarter Revenue Estimate Preview
In late July I published an early fourth fiscal quarter estimate for Apple of at least $20 billion in revenue and earnings of $4.30 or more per share.

This weekend I did a more critical review of Apple's fiscal year 2010 performance through the June quarter and revised my ratios to reflect recent trends in Apple's financial performance. This post discusses the revenue component of Apple's fourth fiscal quarter results.

Apple's FQ4 '09 Revenue and Apple's Guidance for FQ4 '10
In the fourth quarter of fiscal year '09 Apple reported revenue of about $12.2 billion. In the June quarter conference call with analysts, Apple's management provided revenue guidance for the September quarter of about $18 billion in revenue or roughly a 47.5% increase in revenue year-over-year. This guidance is obviously conservative based on the company's revenue growth results for the first nine months of the fiscal year.

Apple's FY '10 Growth Rates To-Date
Apple's revenue growth rate for the first nine months of the fiscal year is 46.2%. This is not the number that suggests Apple's guidance is conservative. In the June quarter the Apple iPad contributed to 61.2% growth in revenue while Apple aggressively drained the global channel of iPhone supply ahead of the iPhone 4's release. Absent the iPad's revenue contribution, the year-over-year revenue gain for the nine-month period would have been about 39.1%. This is a respectable rate of revenue growth absent the Apple iPad.

How the iPad Influences FQ '10 Revenue Results
In the June quarter the iPad produced revenue of $2.166 billion, inclusive of 3.27 million units sold and iPad accessories sales. For the fiscal fourth quarter, a reasonable estimate of sales is 6 million units and estimated revenue of $3.975 billion. The iPad alone at 6 million units sold will produce a revenue gain of 32.5% over the prior-year period.

To put the iPad's importance to Apple's September quarter results in an appropriate perspective, one must consider in limited release the device represented 13.8% of the June quarter's reported revenue. At 6 million units sold the Apple iPad will represent between 18% and 20% of the September quarter's revenue results. This does not include revenue contributions from iPad-related iTunes sales activity.

Although available in limited release in the June quarter only, the iPad represents about 4.8% of Apple's reported revenue for the first nine months of the fiscal year and represents 7% of the revenue growth over the same nine-month prior-year period.

AAPL At $400 Per Share By May: Here's Why

AAPL At $400 Per Share By May:Here's Why

Over the past several weeks I've been quizzed and queried about my continuing call for AAPL to reach over $400 per share by early May 2011. Indeed, I expect AAPL to reach $500 per share within three years. 

No matter the low price to earnings multiple at which Apple's share price currently trades relative to 12-month trailing earnings, surpassing $400 per share within nine months does not require a significant expansion of the company's current p/e multiple nor the release of additional hardware devices. 

At Friday's closing price of $249.64, AAPL is trading at a p/e multiple of only 18.79 times trailing 12-month earnings. This is not only a low multiple to current rates of growth, it's a significant discount to near-term revenue and earnings expectations. I expect by May of 2011 for the price-earnings multiple at which AAPL currently trades to expand to just over 20 times trailing 12-month earnings from 18.79 times earnings today.

What justifies a share price of over $400 by May 2011 are the following factors:

Revenue and Earnings Growth

I forecast Apple's rate of revenue growth for this fiscal year at about 50%. For the first nine months of this fiscal year revenue has exceeded the prior year's total by more than 46%, and only the June quarter included the benefit of Apple iPad sales. In the June quarter Apple realized a 61% increase in revenue due in large part to the release of the Apple iPad in the quarter and its contribution of $2.166 billion in revenue. The Apple iPad alone contributed 22.3% to revenue growth over the prior-year period and represented 13.8% of the June quarter's revenue total.

The Apple iPad and iPhone

For the first two quarters of fiscal year 2011 there will be no iPad revenue comparisons with the prior-year periods and all iPad revenue and earnings contributions will be a boost to results in prior-year comparisons. In my recent blog entry titled Apple and the Law of Large Numbers, I mentioned in the September quarter more than 50% of Apple's revenue will be sourced from products that did not exist in the market as recently as three and one-half years ago. The Apple iPad and associated sales will constitute greater that 20% of Apple's earnings and contribute more than 20% of earnings per share. 

The Apple iPhone will continue to realize strong year-over-year unit sales gains as the global market for smartphones expands rapidly. The Apple iPhone will deliver unit sales gains of more than 50% for the next several quarters and unit sales gains at an even faster clip through at least the 2nd fiscal of 2011. For the first nine months of FY 2010, iPhone unit sales have risen about 94% over the same nine-month prior year period. 

My early FY 2011 revenue and earnings forecast calls for revenue of roughly $100 billion and resulting eps of over $23 per share. 

Verizon Needs The Apple iPhone More Than Apple Needs Verizon

Verizon Needs The Apple iPhone More Than Apple Needs Verizon 

The Set-Up

Verizon and AT&T are "dogs of the Dow." The two companies are like giant sequoias duking it out for root space, each attempting to grow and spread its roots in the cellular space occupied by the other. Combined the two companies control almost two-thirds of the domestic market for cell phone services (based on subscriber totals) and both companies are attempting to quickly transition from traditional landline service providers to preeminence in wireless products and services. Both companies pay rich dividends, both companies are under performing for shareholders, and only one has the Apple iPhone.  Which one? AT&T. The company that's on the cusp of replacing Verizon as the #1 wireless services provider in the nation.

AT&T ended the June quarter with 90.1 million wireless subscribers, adding 1.6 million net subscribers. Verizon ended the June quarter with 92.1 million subscribers, adding 1.4 million net subscribers.

It's not a coincidence AT&T's emergence as a rival for the top spot (and the company's resurgence as a leading wireless services provider) has occurred while having an exclusive contract for voice and data services for the Apple iPhone.

The Verizon Rumors and Speculation

The rumors and speculation about iPhones for the Verizon network have picked up again. Last November I made the case a deal with Verizon for the iPhone was all but inevitable suggesting the end of 2010 as the ideal target date.

On Friday Philip Elmer-Dewitt in an Apple 2.0 column, referencing John Gruber's argument for a Verizon iPhone by January, has fanned the flames of speculation a Verizon deal will occur by early next year. To his credit PED (the initials by which Philip is commonly referred on the Apple Finance Board) has been consistent in reporting on the persistent iPhone on the Verizon Wireless network rumors since they first began. 

These serial rumors are as old as the iPhone itself due to Apple's early acknowledgment Verizon was provided a first look at the iPhone and passed on the offer to be the exclusive domestic carrier before Apple crafted its relationship with AT&T. Verizon's decision to pass on the iPhone is one the most talked about tech industry blunders of the past several years. 

No matter Verizon's efforts to turn the tables on Apple and force an iPhone deal through the high-profile launch of the Android-based Droid and repeated public attacks on the perceived poor quality of the AT&T cellular network, a deal with Apple for the iPhone has remained elusive. 

Why Verizon Needs The Apple iPhone More Than Apple Needs Verizon

It's common when people speculate on an iPhone deal with Verizon (or Verizon Wireless - the joint venture between Verizon Communications and British-based Vodaphone Group of which Verizon owns a majority stake) to mention how much a Verizon deal would benefit Apple. Few people mention the benefits of an iPhone deal for Verizon. Perhaps it's an implicit understanding Verizon needs the iPhone and I believe Verizon needs the Apple iPhone far more than Apple needs Verizon. 

iPhone 4 supply is constrained on a global scale. Apple, a company I forecast to achieve $65 billion in revenue in the fiscal year ending in September, can not manufacture enough iPhones at this time to meet demand. Verizon deal or no Verizon deal, the iPhone remains an extraordinarily popular product. In the 2nd calendar quarter AT&T activated a record-breaking 3.2 million iPhones on its network. While a Verizon deal is widely expected to increase demand for the iPhone, until there's sufficient supply of iPhones increased demand doesn't sell a single phone. 

In a subsequent column also published on Friday, PED references a ChangeWave Research report that indicates 31% of current US iPhone owners would likely switch to Verizon if an iPhone deal was consummated between the two companies. But it's of little interest to Apple to consummate an iPhone deal with Verizon just so iPhone owners can change carriers for their next contract. Rather, PED's column illustrates how much Verizon needs the iPhone in order to grow and maintain the #1 position among domestic wireless service providers. 

Apple isn't interested in a Verizon deal to pick up more demand. Apple's interest in a Verizon deal is for Verizon to deliver its best Wireless customers to Apple and do so in a way that siphons handset revenue from the Android market and creates post-purchase revenue opportunities from a predominant position in the three-way relationship with the customer. 

Apple Retail Stores And Mac Sales

Apple Retail Stores And Mac Sales
There's no doubt a correlation exists between the increase in the number of Apple retail store locations and the impressive pace of Macintosh unit sales gains. In the June quarter Apple sold a record 3.472 million Macs. Of that total, 677,000 Macs were sold through Apple's international chain of retail stores.

However, in addition to being points of purchase, the retail stores play an important role as customer service and product education centers. Apple retail store data suggests the bricks and mortar stores are boosting Macintosh sales through other sales channels. 

Increase In The Number of Apple Retail Store Locations

During last month's June quarter conference call with analysts, Apple's management stated the company ended the June quarter with 293 retail stores and anticipated openings 24 new stores during the September quarter. This 8% expansion in retail store locations in one three-month period is not only ambitious, it supports continued strong Mac sales in the current and future quarters.

In the June quarter Apple retail stores hosted an estimated 60.5 million visitors, experienced revenue growth of 73% over the prior-year period and revenue ramped to an average of $9 million per store. Sequentially, retail store sales rose 53% from the March quarter results. The release of the Apple iPad in the June quarter positively impacted both store foot traffic and store revenue results. As primary points of purchase for the Apple iPad, which currently remains in constrained supply, the retail stores benefitted in both customer traffic and sales activity from the release of this popular new device.

The Pace of Mac Unit Sales Growth

During the first three quarters of FY 2010 the year-over-year growth rate in total Mac unit sales has remained amazingly consistent at 33% each quarter. This impressive rate of Mac unit sales growth for the first nine months of this fiscal year portends strong Mac unit sales in the September quarter as well.

Should Apple report a fourth consecutive quarter of 33% year-over-year increases in Mac unit sales, the company will ship over 4 million Macs in the three-month period ending in September and realize roughly a 17% sequential gain in unit sales, just shy of the June quarter's 18% sequential unit sales gain performance.

For now I am estimating Apple's year-over-year unit sales gains in the September quarter will remain consistent with the trend for the first nine months of this fiscal year, establishing yet another quarterly unit sales record and setting a record for Mac sales in a fiscal year of 13.8 million units or more.

My $1,000 iPad Purchase Odyssey (And The Law Of Large Numbers Be Damned)

I'm taking time out tonight to share my iPad purchase story. My experiences in buying this device provide corroborating anecdotal evidence as to why I believe Apple will achieve $20 billion in revenue this quarter and blow away most revenue and eps estimates. 

My $1,000 iPad Purchase
At the end of that day I had made a $1,000 iPad purchase (accouterment and sales tax included). I spent $1,053.60 to be exact and $960 before CA sales tax was added. The pre-tax amount is a nice even number because Apple doesn't do the silly ninety nine cent thing on hardware devices. The purchase odyssey required an eighty five mile round-trip trek along the highways and byways of Southern California and visits to two extraordinarily busy Apple retail stores on a Sunday afternoon. 

I have nothing against Best Buy per se and certainly not when the store is located conveniently in my home city of Santa Clarita. On this Sunday afternoon the local store had the 64 GB Wi-Fi + 3G iPad in stock. It's not the model I wanted and I was determined to purchase the desired iPad accouterment at the same time. My list of accessories included the external keyboard, AppleCare, additional power cable and the Apple iPad case. I also wanted the 32 GB iPad and wasn't willing to fork over the additional $100 for the 64 GB model. Off to the Apple store in Glendale we go. 

Glendale Apple Store
My wife and I arrive at the Apple Store in Glendale about 3:30pm and the store is absolutely packed. Every digital device on display has someone tending to it and every store staff member is busy with at least one customer and another waiting impatiently for their attention. The store also has absolutely no iPads in stock. Being the resourceful person she is, my wife grabbed the first seat that became available by a Mac on display, took out her iPhone, Googled store numbers and started making calls. The Best Buy in Burbank had no iPads in stock, the Best Buy in Santa Clarita still had the 64 GB model available and the Sherman Oaks Apple Store had the 64 GB model in stock but only if we hurry. 

Not to leave the store empty handed and just in case the Best Buy in Santa Clarita was the only option remaining by the time we drove to Sherman Oaks, I bought all of the iPad accessories I wanted at the Glendale store. The accessories were easy to find. An available sales person to handle the sales was the challenge. Finally we get a staff person's attention. While processing the purchases he recommended we get on the waiting list for an iPad purchase at the store. Estimated wait time was three weeks. I reluctantly signed up as the purchase mode of last resort. We made a beeline for the Sherman Oaks Apple Store. By the time we made the 20 minute drive I had already received my confirmation email from Apple of my reservation at the store for the 32 GB iPad I wanted. I grumbled all the way to Sherman Oaks I didn't want to spend the extra $100 for the 64 GB model, but I had resigned myself to that fate if I wanted the iPad that day.