Apple's $170 Billion Fiscal Year

On September 25th, Apple entered its current fiscal year with the strongest product line in the company's storied history. In a recent article titled Apple's 25% Solution, I provided an overview of Apple's extraordinary FY 2011 revenue and earnings growth performance, including the nearly 25% of recognized revenue that flowed to the net income line. Today I'm publishing my preliminary revenue and earnings per share estimates for FY 2012. For the current fiscal year ending next September, I anticipate 57% revenue growth to $170 billion and earnings per share growth of 66.2% to $46. 

In FY 2012, Apple will surpass HP in revenue to become the nation's largest technology company and maintain its position as the most highly valued enterprise in the industry measured by market capitalization.

The graph below illustrates the percentage of revenue I anticipate each of Apple's major product lines will contribute to the $170 billion recognized revenue total.

The Apple iPhone As The Principal Growth Catalyst

Before I delve into an overview of the anticipated unit sales and revenue performance for each of Apple's major product lines, mention needs to be made of the Apple iPhone as the company's growth catalyst. In FY 2012 I anticipate the popular smartphone line will represent 50% of Apple's recognized revenue and about 62% of the expected 57% rise in revenue. Almost 75% of Apple's projected FY 2012 recognized revenue will be derived from iOS-based products including the Apple iPhone, the Apple iPad and the iPod touch. Each of those products have been brought to market within the past five years. 

The Apple iPhone alone will deliver over $85 billion in revenue in FY 2012 or an amount equal to at least 130% of the company's FY 2010 recognized revenue total.

Understanding Apple's Rates Of Growth

Apple's 21st Century Renaissance
Since the start of the new millennium, Apple has become among the nation's most highly valued enterprises measured by market cap, the world's largest distributor of music, a major global retailer and the biggest mobile device maker when ranked by revenue. Apple's rates of growth over the past six years have been so strong, in FY 2011 revenue surpassed $100 billion. By the end of the company's FY 2013 in September of that year, revenue will surpass $200 billion. This article is intended to assist readers in understanding Apple's recent and near-term rates of revenue and earnings growth.

Apple's Frenetic Rates of Growth

In the six fiscal years since FY 2005, Apple's annual revenue rose 677% to FY 2011's $108.249 billion. During this six-year period earnings per share rose an astonishing 1,686% to FY 2011's $27.68. 

To put the current rates of growth in perspective, in each quarter of FY 2011, revenue exceeded the company's total revenue of $24.578 billion FY 2007.  Earnings per share in FY 2011 reached the combined eps totals for fiscal years 2006 through 2009 with over $5 per share to spare.

Beyond doubt, Apple is an extraordinary success story of the early 21st Century. It was only ten years ago the first iPods came to market and it's been less than five years since the iPhone was initially announced. While understanding Apple's success seems simple when viewing six-year growth charts, over the past few years Apple's success story has become more complex.

Apple's Recent Quarterly Rates of Growth

Apple's frenetic rates of growth have become as challenging to understand as they are to accurately forecast. Graphs of the company's quarterly revenue and eps performance over the most recent eight fiscal quarters are posted below to illustrate the changes in Apple's quarterly revenue and earnings growth cycle:

Apple's 25% Solution

Make no mistake: Apple is primarily a hardware device maker. From beginning to end and at every spot in between, the company is focused on the sales of hardware devices and the development of high margins on products sold. The nearly 25% of recognized revenue that flowed to the net income line in FY 2011 is what I call "Apple's 25% solution." It's Apple's formula  for consistent earnings growth and management's solution to the complex questions that surround strategic product decisions. 

iTunes, The Apple Retail Stores and Other Services

Although Apple is the world's largest distributor of recorded music, a major distributor of software through the app stores and a global retailer with 357 Apple store locations as of the end of the September quarter, these ventures are designed to boost device sales and provide competitive advantages in the company's device markets. 

iTunes, the Apple retail stores and other software and service ventures are constituent to device sales, they support high gross margins and efforts to differentiate the company's product in the competitive global marketplace. They have no other primary or secondary purpose. Apple has no major ventures or areas of operation that could be considered ancillary to the sales of hardware devices.

Apple's Revenue Growth is a Function of Device Sales Only

The graph below illustrates Apple's sources of revenue in the fiscal year ended September 24, 2011. Almost 90% of recognized revenue was sourced from hardware device sales. Sales of iOS-based devices (iPhone, iPad and iPod touch) represented close to two-thirds of the $108.249 billion in revenue generated during the twelve-month period. Revenue generated through iTunes and sales of software products such as Mac OS X, 10.7 represented just over 10% of revenue and this revenue is exclusively tied to the company's device sales efforts.