Posts At Eventide AAPL FQ2 Estimates

Posts At Eventide AAPL FQ2 Estimates

As an independent AAPL analyst and moderator of the Apple Finance Board I've witnessed the continuing transformation of Apple from primarily a one product company at the beginning of this millennium to a newly claimed position as a global technology leader offering an array of popular and award-winning products. 

My estimates rely heavily on Apple's recent quarterly results and I actively track trends that emerge on a rolling basis over the most recent eight fiscal quarters. For more information on the data I compile and the results I track, please see the Posts At Eventide Resource Guide.

FQ2 Revenue and Earnings Estimates

For the March quarter my models forecast revenue of $25.256 billion and earnings per share of $6.30. This represents anticipated revenue growth of 87% over the prior-year period and eps growth of 89%.

This extraordinary pace of revenue growth is due in part to an accelerating rate of iPhone unit sales boosted by the iPhone on the Verizon network and a lessening of iPhone supply constraints. In the March quarter I anticipate revenue growth from iPhone unit sales to be greater than the total revenue generated from iPad unit sales activity.

In year-over-year comparisons I expect a slight reduction in gross margins. Apple has become more aggressive on product pricing in pursuit of increasing unit sales. iOS-based devices (the iPhone, iPad and iPod touch) are designed to deliver post-purchase revenue activity over the economic life of each unit sold. Offsetting the moderation in gross margins is the reduction of operating expenses relative to revenue. For the second consecutive quarter I anticipate operating expenses consuming less than 10% of reported revenue. For an analysis of the growth in operating expenses relative to growth in revenue, please see my February post titled Apple's SG&A Expenses Versus Revenue. 

Posts At Eventide FQ2 AAPL Estimates

	Revenue Segment	Units FQ2 '11	Units FQ2 ’10	Unit Growth	FQ2 Revenue
	Macintosh	3,625,000	2,943,000	23.2%	4,585,625,000
	iPhone	18,125,000	8,752,000	107.1%	11,563,750,000
	iPod	10,000,000	10,885,000	-8.1%	1,800,000,000
	iPad	6,750,000	N/A	100%	4,320,000,000
	Peripherals				565,000,000
	Software, Services				762,500,000
	Other Music				1,658,750,000
	Revenue Total				25,255,625,000
	Cost of Sales	60.2%			-15,203,886,250
	Gross Margin	39.8%			10,051,738,750
	Operating Expenses	9.5%			-2,400,000,000
	Operating Income	30.3%			7,651,738,750
	Other Income				125,000,000
	Income Before Taxes				7,776,738,750
	Provision For Taxes	24%			-1,866,417,300
	Net Income	23.4%			5,910,321,450
	Earnings Per Share	937,503,000	Shares		6.30

March Quarter Unit Sales

My FQ2 estimates include the following unit sales estimates for Apple's major device product lines:

Mac Unit Sales

For the March quarter I estimate Macintosh unit sales of 3.625 million units, an increase of about 23% in unit sales over the prior-year period. The unit sales growth will be fueled primarily by portable Mac products. The recent refresh of the Mac portable line will buttress unit sales growth and continued market share gains. The growth in the number of Apple retail stores will also support growth in Mac unit sales. For more information please see my recent posts titled The Apple Macintosh: Success In The Era of handheld Devices and Apple Retail Stores: Macintosh Sales Center and More.

iPhone Unit Sales

For the March quarter I forecast iPhone unit sales of 18.125 million units or about a 107% increase in unit sales over the prior-year period. High growth in unit sales are due to both the release of the iPhone on the Verizon network and increasing supplies of the iPhone to meet global demand. There's no disputing the success of the Apple iPhone and it is for the now the company's flagship product, representing over 45% of my anticipated March quarter revenue total. 

iPod Unit Sales

The iPod line is in an era of unit sales decline. The mass adoption of smartphones is reducing the size of the market for specific-use digital music players. The good news for Apple is the popularity of the iOS-based iPod touch which comprises more than 50% of the iPod line's revenue. All of Apple's iOS-based handheld devices inclusive of the iPhone, iPad and iPod touch have iPod functionality. Apple maintains a commanding position in the digital music player market and the iPod's unit sales decline is due in part to the success of other Apple handheld devices.

iPad Unit Sales

For the March quarter I estimate iPad unit sales of 6.75 million units. This estimate is based of the quarter's beginning channel inventory of the original iPad and constrained supplies of the iPad 2 as Apple exited the quarter. In my view outside of the Apple iPad a consumer market for tablet products does not currently exist and I view the iPad as an expansion of the company's multi-device iOS product paradigm. I expect June quarter iPad shipments to skyrocket as greater supplies become available and the global rollout of the iPad 2 continues. 

Due to the release of the original iPad in the June quarter of 2010 prior-year sales in the March quarter do not exist. 100% of iPad revenue in the March quarter adds to the quarter's year-over-year revenue growth and contributes heavily to the anticipated March quarter revenue gains.

Conclusion

Increasing supplies of the Apple iPhone, the domestic Verizon iPhone deal and the growing popularity of the Apple iPad contribute to the most successful FQ2 in the company's storied history. Over 60% of the March quarter's revenue will be sourced from products that did not exist in the market as recently as four years ago. I expect record revenue and earnings growth to continue through FY 2011 and for the share price to rise in concert with the rise in earnings. I will update my AAPL 12-month price targets following release of the March quarter numbers.

Robert Paul Leitao