Apple March (2Q) 2013 Earnings Review

April 23, 2013 (7:30 pm)

We compared our estimates (Three28 Est.) to the actual results and management’s guidance. While Apple’s management only provides guidance on a few figures, we derive likely guidance numbers indicated by an asterisk where we’re able to given other information (i.e. revenue guidance + margin guidance to find gross profit, etc.). You can review the earnings preview we provided on March 18 here. Overall, our unit estimates were extremely close to actual figures this quarter.

Three28 Est. Actual Guidance Actual/T28 Actual/Guid.
Mac Units 4,000 3,952 (0.1%)
Mac ASP $1,225 $1,378 12.5%
Mac Revenues $4.9bn $5.4bn 11.2%
iPod Units 6,000 5,633 (6.1%)
iPod ASP $165 $171 3.6%
iPod Revenues $990mm $962mm (2.8%)
iPhone Units 37,500 37,430 (0.2%)
iPhone ASP $640 $613 (4.2%)
iPhone Revenues $24.0bn $23.0bn (4.4%)
iPad Units 20,000 19,477 (2.6%)
iPad ASP $440 $449 2.0%
iPad Revenues $8.8bn $8.7bn (0.6%)
Software & Other $4.0bn $4.1bn 2.9%
Total Revenues $42.7bn $43.6bn $42.0bn 2.1% 3.8%
Gross Income $16.6bn $16.3bn $16.0bn* (1.8%) 1.9%
Net Income $10.1bn $9.5bn $9.2bn* (5.9%) 3.3%
Gross Margins 39.0% 37.5% 38.0% (10.4%) (1.3%)
EPS $10.66 $10.09 $9.73* (5.3%) 3.7%
Cash Per Share $157.69 $152.94 (3.0%)

Mac Business: Our 4 million unit estimate was within 50,000 units of the actual shipments. This was in-line with both the previous quarter (4.06 million units) as well as the year ago quarter (4.02 million units). We expected a boost due to the iMac supply constraints during the previous quarter as well as the price decrease on Macbooks early in the quarter. We’re surprised to see the average selling price (ASP) $150 above our expectations. We decreased our ASP to $1,225 from the previous quarter’s $1,359 due to the MacBook Pro price reduction mid-quarter and availability of the lower-cost iMac’s. Clearly this thesis was incorrect. We’ll continue to research this dynamic. While our unit estimates were very accurate, ASP’s beat to the upside.

iPod Business. Our 6 million unit estimate was roughly 6% above the actual figures. The year ago quarter saw a roughly 50% drop (to 7.7 million units) in iPod sales after the holiday quarter (15.4 million units). We assumed the same drop (from 12.7 million units). We slightly decreased ASP compared to the previous quarter to be conservative; however, the product mix remained the same and the ASP rose very slightly. Overall, our estimate was within 3% of actual revenues.

iPhone Business. We estimated 37.5 million iPhones units this quarter, which was within 70,000 units of actual shipments (or a 0.2% discrepancy). Our estimate reflected a 10 million unit decrease compared to the previous quarter and a nominal 7% increase over the past year (35.1 million units). We expected the year over year comp to be easily achieved since the company is selling them in more countries and to more carriers (as well as aggressively marketing in less established markets). We expected the product mix to remain relatively constant over the previous quarter, but it looks like consumers slightly preferred lower cost (and lower margin) models. This explains the decrease in ASP compared to our estimates. Overall, we couldn’t have come any closer on the unit shipments, but must focus on the product mix to better gauge ASP’s going forward.

iPad Business. We estimated 20 million iPad unit sales, which was within half a million unit sales (or roughly 2.5%. This represented a slight decrease over the previous quarter (22.9 million units) and significant jump over the year ago quarter (11.8 million units). We expected the supply constraints of the iPad mini last quarter and the Chinese New Year to begin this quarter to drive demand. We decreased our ASP expectations to $440 in light of the rise of our expectations for the iPad mini. This proved to be a bit too low compared to the actual ASP of $449. Overall, we were within 1% of revenues in the iPad business.

Revenues. Our revenue estimates were light by $0.9bn, primarily due to the higher than expected Mac ASP’s and slightly increased iTunes sales. Our revenue estimate came in 2% light this quarter – just about where we’d hope to be going forward. Since we utilize our estimates in order to project future price performance, we hope to be conservative, but realistic in our expectations.

Gross Margins. We overestimated gross margins by a large degree. We expected margins to improve compared to the previous quarter, since the typical dynamic is for the quarter of a product release to see the lowest margins. With margins expected to be even lower next quarter, it may be a sign that new product will be released toward the end of the quarter (potentially around the June WWDC). However, Tim Cook on the conference call referenced new products coming “this Fall” – not Summer. So we’ll keep our excitement contained for the time being.