Wednesday, October 24, 2012

Revised: Fiscal 4Q 2012 Final Estimates

I'm not a fan of revising estimates the day before the report. However, this time Apple has essentially pre-anounced the iPad number and everyone will post their revisions, so I might as well get on with it. In addition to the more than four million iPad units shortfall, I'm revising the Mac estimate lower by half a million units mainly on an inventory drawdown and, to a lesser extent, widespread reports of PC market weakness.

These changes result in about $3 billion lower revenue and $0.80 lower EPS for the quarter. The gross margin percent goes up about 70 basis points on the higher iPhone mix.

Additionally, I took this opportunity to tweak the longer-term projections to account for the new products introduced yesterday. Here are the usual details:

3mo ending Sep-2012   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         34,000     7.65
Analysts consensus     35,800     8.75
Deagol estimates       36,063     9.68

Monday, October 15, 2012

Long-term Apple Segmented Revenue Visualizations and Projections

Two years ago I made the rather conservative (but somehow controversial back then) prediction that by this last quarter just ended in September and about to be reported next week, the iPad would have passed the Mac in trailing-twelve-months revenue. That post also included a far-reaching projection into the future for all product lines, as well as some specific estimates for FY2011.

As it turned out, iPad revenue has in fact already exceeded Mac revenue on a trailing-twelve-months basis but by the first quarter (Jan) of this fiscal year (at least I got the year right): for calendar 2011 the iPad logged in revenues of $24.9b while the Mac only managed $23b. Regarding the other specific predictions for FY11, I was slightly high for iPod revenue ($8.0b vs. $7.5b actual), iTunes ($6.5b vs. $6.3b actual), and Software ($3.2b vs. $3.0b actual). I came up way, way short on iPhone ($32.7b vs. $47.1b actual) and iPad ($18.0b vs. $20.4b actual), and a tad short on Mac ($21.0b vs. $21.8b actual) and Peripherals ($2.2b vs. $2.3b actual).

About the very long-term projection (shaded hazy part), a careful study of the chart shows some considerable differences, which I'll leave up to the reader to compare visually. Here's the update now with the FY2013 predictions (click on all charts to enlarge even more):

Sunday, October 7, 2012

Animo Venezuela

“One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship.”

Thursday, October 4, 2012

What is Apple Worth? Part 2: Paradox Resolved?

In part 1 of this series I talked about Daniel Bernoulli's brilliant idea of using a concave utility function to solve the St. Petersburg paradox, a problem originally posed 300 years ago (and a couple of decades before Daniel's solution) by his cousin Nicolas. I explicitly suggested a strong parallel with the way Apple is being undervalued as it gets bigger and bigger, and ended with a discussion of how the overused modern phrase "law of large numbers" (aka lol numbers) as misused by current mainstream financial media talking heads (when referring to the "limits of growth" concept) ironically is in contradiction with the actual fundamental probabilistic concept called the Law of Large Numbers (LLN), first proved by Daniel's and Nicolas' uncle Jacob Bernoulli: If Jacob's LLN applies, the likelihood that Apple will continue to grow would seem higher, given the historical empirical record, not lower (as the lol numbers trite cliche implies). On the other hand, if in fact there are limits to growth being reached, then the actual LLN is violated (independence of trials). In short, the semantic confussion and logical contradiction of invoking a misnamed "law" to justify persistent multiple compression despite continued strong growth in Apple's earnings might get resolved by reinterpreting it not necessarily as limits to growth but instead as an expression of the concept of diminishing marginal utility (although these two concepts might be related after all).

For this part 2 my goal was to explain why and how such a simple solution of a concave utility function works in assessing the pragmatic value placed by most people on such big yet unlikely potential returns as well as why and how the specific logarithmic utility proposed by Bernoulli might not work in every case, and how the theory eventually got refined over the years, decades and centuries. This is no simple task: to wade through 300 years of academic literature on economic theory, and most recently financial theory, from the incipient probability research to modern portfolio theory and CAPM. For an example of the nature of the literature, check out this 850 page book (many pages omitted in that Google Books preview) focused only on a singular very specific thread (the Kelly Criterion) within the broader subject. Even if I could digest and condense all of it into a blog post (which I definitely can't), I wouldn't want to submit my readers to such a dry academic dissertation. Besides, it's mostly way over my head. Hence, after being set back on my promise to post this within a couple of weeks of part 1, I've finally decided to go with a very simplified intuitive exposition, but leaning heavily on the multiple referenced links provided (with the caveat to only rely on Wikipedia for a superficial glance and to conduct your own research through more reliable sources if a deeper understanding is needed). Apologies if this ends up with significant theoretical holes.

Wednesday, October 3, 2012

Fiscal 4Q 2012 Final Estimates [Updated 10/24]

[10/24 UPDATE: In light of information revealed during the October 23 event and, to a lesser extent, widely reported PC industry weakness, I'm revising iPad and Mac estimates for Q4. I now estimate 4m fewer iPads and 0.5m fewer Macs (mainly inventory drawdowns) results in about $3b less revenue and $0.80 lower EPS. Gross margin percent goes up about 70 bps due to mix. I'll be posting a detailed revision later today (here).]

As of Tuesday's closing price of $661.31, AAPL is trading at a 10.1 multiple on my forward EPS estimate (8.1x ex-cash). Valuation remains attractive despite the 9.1% increase in share price and downward revenue/EPS estimate revisions for FY13 of 8.7/10.4% over the last 3 months.

Detailed estimates below:

3mo ending Sep-2012   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         34,000     7.65
Analysts consensus     36,270     8.88
Deagol estimates       39,136    10.48