The Macintosh Revenue Paradox

The Macintosh Revenue Paradox

On October 30th I published Apple's FY2010: A Retrospective. In that blog post I charted the Mac's 27% contribution to Apple's FY2010 reported revenue. In fiscal year 2010, Apple sold 13.662 million Macs and those CPU sales produced revenue of almost $17.5 billion dollars. Yet record revenue from Mac sales continue to have a diminishing percentage contribution to Apple's overall revenue results. 

Macintosh Revenue and Contribution To Overall Revenue Results

In the recent December quarter, Macintosh CPU sales produced revenue of over $5.4 billion yet represented just over 20% of Apple's reported revenue. To put the Mac's unit's revenue performance in a broader perspective, in FY2011 Macintosh CPU sales will produce revenue at or above $21 billion and revenue from Mac sales will exceed Apple's revenue from all sources as recently as FY2006. This paradox of record revenue and declining percentage of revenue contribution to Apple's overall results is due of course to the popularity of Apple's iOS-based products such as the Apple iPhone and Apple iPad. 

However, for Apple to sustain rates of revenue growth similar to or near the December quarter's 70.5% growth throughout FY2011, continued growth in Macintosh revenue figures prominently in the outcome. 

The graph and table data below illustrate and indicate both the Macintosh's rising revenue and falling percentage of revenue contributions to Apple's overall revenue results:

AAPL FQ 1 Revenue Results With And Without The iPad

AAPL FQ 1 Revenue Results With And Without The iPad

On Tuesday Apple reported record revenue of $26.741 billion for the company's 1st fiscal quarter ended on December 25, 2010, representing 70.5% growth in revenue over the prior-year period and a 31.5% rise in revenue sequentially over the fiscal quarter that ended in late September. This frenetic pace of revenue growth was fueled by strong growth in iPhone sales and the emergence of the Apple iPad in the company's product line-up. 

The graph below illustrates the percentage contribution to revenue from each of Apple's largest revenue segments. Combined, the Apple iPhone and the Apple iPad represented 56.38% of Apple's reported revenue. The Macintosh line of personal computers contributed just over 20% to the revenue total and the Apple iPod line represented just over 1/8th of the total at 12.81%. 

AAPL FQ1 ’11 Results As Reported
	FQ1 ’11		FQ 1 ’10	FQ 1  ’11	%  of Revenue
Revenue Segment	Revenue	% of Total	Revenue	Growth	Growth
Macintosh	5,430,000,000	20.31%	4,450,000,000	980,000,000	8.86%
iPhone	10,468,000,000	39.15%	5,578,000,000	4,890,000,000	44.22%
iPod	3,425,000,000	12.81%	3,391,000,000	34,000,000	0.31%
iPad	4,608,000,000	17.23%	0	4,608,000,000	41.67%
Peripherals	593,000,000	2.22%	469,000,000	124,000,000	1.12%
Software, Service	786,000,000	2.94%	631,000,000	155,000,000	1.40%
Other Music	1,431,000,000	5.35%	1,164,000,000	267,000,000	2.41%
Total	26,741,000,000	100%	15,683,000,000	11,058,000,000	100.00%

Apple's Price-Earnings Multiples Before and After Earnings Reports

Apple's Price-Earnings Multiples: Before and After Earnings Reports

On November 14, 2010 I published my most recent AAPL price forecasts and price targets. In that post I set a share price target of $363 for February 1, 2011 with a forecast price range of $346 to $380. On Friday, January 14, 2011, AAPL closed at $348.48 per share, in anticipation of strong December quarter results to be released on Tuesday. 

At Friday's closing price AAPL is trading at 23 times trailing 12-month earnings. This multiple foreshadows a strong December quarter performance and the market's response to this week's announcement the iPhone will soon be available in the US on the Verizon network.

In preparing for revisions to my price forecasts and targets to be published soon after the release of the December quarter results next week, I researched the price-earnings multiples for AAPL just prior to and soon after the public release of quarterly earnings reports for the most recent quarterly periods. The data suggests no matter the recent rise in Apple's share price over the past few weeks, there's room for the share price to run following the release of December quarter results on Tuesday. 

AAPL's Pre-Earnings P/E Multiples

The table data and graph below indicate the closing share price and price-earnings multiple on the 15th of the month and within a week of the release of quarterly earnings reports for the most recent four fiscal quarters. Apple's Friday price-earnings multiple of 23 times trailing earnings is within the range of recent multiples ahead of earnings releases.

Apple's Pre-Earnings Multiples

	Date	Price	P/E Multiple
	Apr 15, 2010	248.92	24.31
	Jul 15, 2010	251.45	21.35
	Oct 15, 2010	314.74	23.70
	Jan 14, 2011	348.48	23.00

The AFB AAPL Price Target Index

Please see The AFB AAPL Price Target Index - February 2011 Edition posted February 15, 2011 


The AFB AAPL Price Target Index

The active members of the Apple Finance Board are best described as an assemblage of talented individuals with colorful personalities. They are outspoken, hardworking and focused on understanding everything there is to know about Apple and the company's financial performance.

As a service to the members of the AFB, a popular and well respected discussion board, I'm hosting the the AAPL price targets and share price forecasts developed by the members here at Posts At Eventide. As the host of the index and commentator on the members and their entires, I'll be publishing my price targets and forecasts in separate posts at Eventide. 

This index is the second in a series of polls soliciting the input of AFB members. The AFB AAPL FQ1 Estimate Index was published on January 1, 2011. 

The participants in this index represent a cross section of AFB members ranging from well known AAPL analysts Horace Dediu under his asymco moniker and Daniel Tello, commonly known as deagol, to long-time members macorange and ChasMac77, and members who have joined the discussion group within the past year such as Gregg Thurman. 


AFB members tend to be bullish and their expectations for near-term appreciation in Apple's share price is evidenced in the numbers. AAPL closed today at $341.64, following the iPhone on the Verizon network announcement and ahead of next Tuesday's release of the company's results for the December quarter. The average share price target for May 1, 2011 of $385 per share evidences expectations of a more than 12.5% rise in the share price between now and the first day of the month following the release of the March quarter results. The average target price for just over a year from now calls for a nearly 57% share price advance from today's closing price.


Comments on the index can be made at the bottom of this post and for registered members of the AFB in the topic created specifically for this discussion.  

Below are the average price targets and share price ranges for the 13 AFB members participating in the index by providing projections for the selected dates:

	AFB	Index	Averages
	Date	Low	High	Target
	May 1, 2011	345	411	385
	Aug 1, 2011	377	455	425
	Nov 1, 2011	425	510	475
	Feb 1, 2012	476	581	536

12 Quarters of Mac, iPhone and iPod Unit Sales

12 Quarters of Mac, iPhone and iPod Unit Sales

As an independent analyst I rely heavily on historical data in developing estimates of Apple's future performance. In an October blog post titled Apple's FY2010: A Retrospective I looked at the revenue contributions of each of the company's major product lines. 

Today I'm publishing in table and graph form the unit sales for the Mac, iPhone and iPod  product lines for the most recent twelve fiscal quarters, from FQ1 2008 through FQ4 2010. The numbers are published with little need for analysis. The graphs are each worth 1,000 words. 

I will be updating my CY 2011 AAPL Price Target and Price Forecasts following the release of FQ1 2011 results on January 18th. In the meantime, the table data and graphs in this blog post illustrate Apple's foundation for continuing growth. In FY 2011 (ending in September), I expect Apple to report over $100 billion in revenue and earnings per share at or above $25. Apple's foundation for strong revenue and earnings growth isn't built on any one product line. Although the Apple iPhone and the Apple iPad will generated more than 50% of the company's revenue this fiscal year, each of the company's major revenue segments materially impact overall results. 

The Macintosh

While much attention has been placed on the Apple iPhone and Apple iPad, the Macintosh line of personal computers continues to contribute heavily to the company's overall results. In FY2010 the Macintosh line represented 27% of the company's reported revenue and in the fiscal year unit sales rose 31%. In FY2011 I expect the Mac's strong unit sales growth to continue and for the line to represent roughly 20% of the company's reported revenue for the fiscal year. 

		Unit Sales	Mac	Sequential	YOY
		FQ1 ’08	2,319	7%	44%
		FQ2 ’08	2,289	-1%	51%
		FQ3 ’08	2,496	9%	41%
		FQ4 ’08	2,611	5%	21%
		FQ1 ’09	2,524	-3.33%	8.84%
		FQ2 ’09	2,216	-12.20%	-3.19%
		FQ3 ’09	2,603	17.46%	4.29%
		FQ4 ’09	3,053	17.29%	16.93%
		FQ1 ’10	3,362	10.12%	33.20%
		FQ2 '10	2,943	-12.46%	32.81%
		FQ3 ’10	3,472	17.97%	33.38%
		FQ4 '10	3,885	11.90%	27.25%

Posts At Eventide FQ1 AAPL Estimates

Posts At Eventide AAPL FQ1 Estimates

As an independent analyst and moderator of the Apple Finance Board I enjoy the opportunity to prepare estimates of Apple's anticipated performance on a quarterly basis.

My estimates rely heavily on Apple's recent quarterly results and I actively track trends that emerge over the most recent eight-quarter periods. For more information on the quarterly data I compile and the results I track, please see the Posts At Eventide Resource Guide for Independent AAPL Analysts. 

FQ1 Revenue and Earnings Estimates

For the December quarter my models forecast revenue of $26.425 billion and earnings per share of $6.27. This represents anticipated revenue growth of 68% over the prior-year period and eps growth of 70.8%.

I expect eps growth to slightly exceed revenue growth in the quarter due to lower tax rates and a drop in operating expenses relative to revenue. For a comparison of the rates of growth in Apple's revenue and operating expenses, please see my recent blog post titled Apple: Revenue Growth vs. Growth in Operating Expenses. The drop in tax rates and the drop in operating expenses relative to revenue will mitigate the impact of lower gross margins in the quarter versus the prior-year period. 

Apple has become more aggressive on product pricing relative to manufacturing costs. It's my view the moderation in gross margins seen in FY2010 and expected in the December quarter is intended to gain market share through higher unit sales and promote growth in post-purchase revenue from the sales of apps and digital content. The more units sold, the greater the growth in post-purchase revenue. 

Apple's Dynamic Revenue Mix

In late October I published blog post titled Apple's FY2010: A Retrospective. In that post I illustrated the contributions of each of Apple's revenue segments to the company's overall results. In the December quarter and throughout FY2011 the Apple iPad will continue to dramatically change the percentage of revenue contributions from each of Apple's major product lines. I estimate in the December quarter the Apple iPad will represent about 17% of Apple's reported revenue and represent almost 42% of the quarter's estimated growth in revenue.