Margin will not be compressed down to where they guided for this bigger than ever new products Q with its attendant production learning curves, spiffs for 24/7 shifts and up to triple overtime pay, accelerated distribution costs such as overnight Fedex planes vs freighters, parts sourcing strains, throughput yields, and all of those issues magnified by entering dozens of new markets forever. Why?
First, they sandbagged margin guidance for all of those reasons.
Second, most of those margin haircuts (except for wrt the Mini iPad) were either fully resolved by the end of the December Q or shortly thereafter.
Third, supply/demand are in balance now with the i5 (they are keeping the i5 production lines open during the chinese new year's celebration coming right up for only the second time in history, so production will not be slowing down anytime soon).
Fourth, it is likely that the original Mini iPad production is now up the yield curve, too... such that supply/demand balance is close now with the inferable result that margins are already improving.
Fifth, concerns over the Mini's cannabilization of the full size options (happening on unit q) will assuredly be moderating by the reality that the $329 price point is not applicable to 5 of 6 of the Mini in the product lineup.
Sixth, the app store news is not yet even understood, let alone discounted... combined with music (rumored streaming service adjunct to iTunes coming), service and the other lines the sellside glosses past, these revenue sources are growing faster than 25% and much of it has upper limit operating leverage of flatlining (sunk) costs. Further, these revenue sources are about to soar on the new markets/products which just last week Cook emphasized would soon zoom past the U.S. market importance for AAPL.
Seventh, the mapping function is being improved daily and to the extent the present search options being driving meaningful mobile revenues for the engines, it is likely AAPL will get a share.
Some analysts must be reading my threads -- two have noted the mix comments as favorable for margin this morning after none did yesterday. LOL
Still, journalists this morning are focused on why the VZ mix topic must mean people don't want the more expensive i5. NOT IT... (1) some may not need all the capablilty; (2) some may have been pushed by salespeople in the carrier stores saying "sorry we don't have the i5, but the i4 or i4s are really good phones and cost less" and also be getting an etra $25 commission for selling the older phones the carriers now how blowout prices on to make way for the phones coming later this year and now that the i5 supply demand balance is attained; and (3) some maybe just wanted the cheapest one they could get instead of one of the cheapie android phones they don't want to have again.
All good news for AAPL and the ecosystem... these iPhone 4 and i4s buyer will all want an i5 or i5s or i6 or i12 someday on the upgrade roll date. LOL
REASON NUMBER 11 -- Beyond selling more iphones than contemplated at VZ and likely the other carriers around the world as well, the I5 SUPPLY IMBALANCE MEANS MORE CONSUMERS TOOK THE I4 AND I4S than previously contemplated at VZ and likely T and Sprint (the latter is biased to the other phones because they won't have LTE capacity until later this year). This means lower subsidies for the carriers in the quarter, but MAXIMUM margins for AAPL because they are coming off of the very seasoned, high yield production lines vs the early i5 runs where the learning curve yield and defective backs/glass issues were not yet ironed out and hence would have had lower yields.
The i5 supply demand curve is in balance now, and margins are already way up the curve as a result, so this is all great news for aapl. Additionally, it is serving to blow out inventory of the oldr phones, likely just before AAPL sharply curtails or eliminates the iphone 4 lines... gee, d'ya think maybe that was some of the parts order curtailment bs?
AAPL numbers will be great tomorrow as I've been saying... but now we have confirming data from ATT, VZ, Canada, Al Gore's early option exercise, and more... Tomorrow will be grand for longs, especially as margin departments go to work on unhedged shorts and as hedged shorts on pro positions continue to come off in tippy toe fashion as seen this afternoon and in taking advantage of moronic algo shorting today. LOL
study guide series before the cc and huge run up tomorrow.
Essay question: What was misunderstood about appl? Discuss why analyst estimes are so tight, margins, negative sentiment, the chart, timing/exhaustion concepts, product introduction yields, new products, new markets, etc.
LOL Maybe penn will let me teach a course in this.
One thing about this margins issue ..... Apple "supposedly" missed their last two qtr's, but that was due to the dumbarse analysts with their bad calc's (or maybe their firm's casino gamesmanship), inflating expectations so that when the real #'s were announced, it constituted a "miss". A public co.'s fate ultimately is in the hands of these buzzards.
ot for this thread, but much as we love aapl and Tim, the blame for that lies at the feet of the CFO and IR for not protecting Tim.
see my other posts on guidance/consensus etc.
Todd, actually it is the next one down -- an hour prior to yours and tied to top of post. I noted it a couple days ago on my other margin post I suppose. Too much fun tooling on gumps who think they are prepared for intellectual combat on these real posts. LOL
I just realized my title said 38% guided... it was actually 36%. The street consensus is inching up too as every legit sellsider begins to realized Tim's telegraphing -- even before big Al Gore sent the covert message on the near and longer term future.
This should be a beautiful week for the lings for a change.
Did I mention the margin was 44% for AAPL's FY ended Sep 23rd? In the Dec quarter, a smashing record coming on revenues and EPS despite the SANDBAGGED guide that threw all the analysts off their horses (after AAPL beat guidance but missed the consensus for two Q in a row), we are saying that the margin will be pressured vs the FY 12, but there is no way it will be down to 36%.
The stock is trading like they'll miss not just the consensus revs, margins, eps, but also the SANDBAGGED guidance. That is likely to be a very poor gamble going into this week. "DON'T Bet against AAPL" Tim tried to warn everyone... sleep tight longs.
Very impressive Squeeze. I like your approach, appreciate your efforts and hope your reasoning plays out. It all makes a lot of sense and is certainly confidence-building. Thanks for the post.