AAPL 1Q12 Estimate

Revenue: $39.4 billion (AAPL guidance: $37 billion/Consensus: $37.9 billion) 

I expect iPad and iPhone to represent nearly 70% of Apple’s quarterly revenue.  My projected revenue is 38% higher than any previous quarter (closest was $28.6 billion revenue reported in 3Q11). 

GM: 41.3%  (AAPL guidance: 40%/Consensus: 41.6%)

Apple’s margin in 2011 ranged from 38.5% to 41.7%.  A higher iPhone mix during 1Q12 (including 3GS and 4 models) should benefit overall GM with component pricing remaining largely unchanged from previous quarters. 

EPS: $10.50  (AAPL guidance: $9.30/Consensus: $9.72) 

I expect Apple to report 63% yoy earnings growth.

Product Unit Sales and Commentary

Macs: 5.2 million (25% yoy growth)

Mac experienced 22% yoy growth in 2011 (34% growth in portables and 1% in desktops) and I expect similar growth during 1Q12 as consumers flock to the MacBook Air.  Apple will continue to take market share from Windows (early stages of 5-10+ year trend). As the PC market struggles to grow (thanks in part to the proliferation of smartphones and iPad), I view long-term Mac growth near 10% as very respectable. 

iPad: 14.7 million (100% yoy growth)

iPad supply/demand returned to equilibrium during 4Q11 with Apple reporting an average weekly sales rate of 925,000 iPads.  My 14.7 million iPad estimate assumes an average 1.1 million iPad weekly (13 weeks) sales rate (higher than 4Q11 due primarily to holiday shopping). I am not forecasting any significant change to the iPad channel.  While there have been many rumors and reports indicating softening iPad demand, I think some of that is the reduction of overly optimistic iPad expectations towards a more conservative consensus expectation.  I think iPad will remain a top holiday gift. My 100% yoy growth does contain some conservatism when compared to 334% yoy iPad growth reported in 2011. 

iPod: 16.5 million (15% yoy decline)

Continued strong iPod touch sales will partially offset the continued decline in Apple’s other iPod models.  Apple refreshed the iPod line-up in 4Q11 and iPods do make great stocking stuffers, so my 15% yoy decline is slightly higher than the 20% and 27% yoy declines registered in 3Q11 and 4Q11, respectively.

iPhone: 28.4 million (75% yoy growth)

iPhone 4S sales are off to a fast start with 4 million devices sold during opening weekend, a 1-2 week backlog on Apple’s online store (my iPhone 4S ordered from Apple took 15 days to arrive), and continued extended shipping waits at mobile carriers. It is clear that iPhone 4S supply/demand is not in equilibrium. iPhone 3GS (and iPhone 4) price reductions should also benefit 1Q12 sales. Apple’s largest iPhone quarter prior to 1Q12 was 20.3 million sold during 3Q11 (average of 1.7 million per week). My 28.4 million estimate reflects an average 2.2 million per week sales rate, but I admit that sales will be limited to Apple’s iPhone production levels. Another way to conceptualize my estimate: I am assuming 4 million iPhone 4S devices sold during opening weekend and then a subsequent 2 million units sold each following week (not out of the question given continued stockouts and the impact from 3GS and 4 models). 

Questions can be addressed to me through twitter. 

iPhone Accounted for Nearly 40% of U.S. Smartphone Sales in 3Q11

Nielsen’s third quarter survey of mobile users seemed to reaffirm what many have been saying; Android continues to grab more smartphone market share, with 43% U.S. share compared to iPhone’s 28%. This morning, I thought a little bit more about Nielsen’s data and something just didn’t seem right.

Since I follow AT&T’s and Verizon’s quarterly earnings, I recalled how AT&T’s most recent report indicated iPhone accounted for approximately 60% of AT&T’s smartphone sales.  How was it possible that iPhone has less than 30% overall smartphone share in the U.S., while iPhone share at AT&T (the carrier with the highest smartphone penetration rate) is over 60%?  After collecting a few more data points and running with conservative assumptions, I estimate that iPhone accounted for close to 40% of U.S. smartphones sold during 3Q11.  

How Many Smartphones Were Sold in the U.S. During 3Q11?

One of my goals in this analysis was to rely on as little estimation as possible.  In order to accomplish this, I was interested in only iPhone share (the rest of the mobile pie can be figured out at a later time). Fortunately, both AT&T and Verizon supply concrete iPhone and total smartphone sales data. During 3Q11, AT&T sold 4.8 million smartphones, of which 2.7 million were iPhones (56%).  Meanwhile, Verizon sold 5.6 million smartphones, of which 2 million where iPhones (36%). Combined, iPhone accounted for 45% of smartphones sold at AT&T and Verizon during 3Q. What about Sprint and T-Mobile? Neither provide concrete smartphone sales data, primarily because they pail in comparison to larger competitors, AT&T and Verizon. Sprint indicated 8% of its 28 million postpaid ‘Sprint brand on CDMA’ subscriber base upgraded during 3Q, of which 80% were smart phone upgrades, which would lead to approximately 1.75 million smartphones sold during the quarter. With T-Mobile being much smaller than Sprint, I peg smartphone sales closer to 1 million. I assume that no unlocked iPhones made their way over to Sprint or T-Mobile during the quarter, which isn’t the case as T-Mobile recently indicated 1 million iPhones were are on their network (for comparison, T-Mobile has 10 million phones on its 3G/4G network).

iPhone’s Share of U.S. Smartphones Sales

Running with conservative estimates and adding up sales at the four largest U.S. carriers, approximately 13.1 million smartphones were sold during the quarter, of which 4.7 million, or 36%, were iPhones. Adding the impact from unlocked iPhones, and the share would be even higher. Remaining U.S. mobile carriers are too small to change the calculations one way or another.  

iPhone Sales Were Down 16% in 3Q 

iPhone 3Q sales trends are even more striking when considering total iPhone sales were down 16% sequentially during the quarter (I estimate the U.S. market saw a steeper decline of 20%+). iPhone sales were 17.1 million during 3Q, compared to 20.3 million in 2Q and 18.9 million in 1Q.  Many consumers held off on smartphone purchases, or upgrades, since rumors of an updated iPhone were in the marketplace for a number of weeks (if not months).  

Total iPhone Market Share

Nielsen’s market share data appears to show share of current smartphone usage, which I think is faulty and error-prone (one could make the argument that Nielsen is in fact just looking at 3Q sales data, however my previous calculations would prove otherwise). How does one measure how many phones are currently in use? Is Nielsen adding all of its prior quarterly shipment data to reach current market share usage? Such a method would lead to inconclusive data as it is unclear how many phones are still in use or have since been discarded. As an example, I bought an iPhone 3GS in 2009 and it has since been discarded to a pseudo iPod Touch. Since it is tough to estimate iPhone’s current overall usage share, one could instead look at big picture themes. According to Nielsen, iPhone has 28% share and it is reasonable to assume that iPhone’s share has improved with iPhone at Verizon. Is it possible that iPhone had less than 28% U.S. smartphone usage share in 2010 when iPhone accounted for over 60% of AT&T smartphone sales? I have my doubts.

What Is Going On?

My primary theory for why Nielsen’s market share data is wrong, or at least misleading, is that some OEMs have altered Android to such a degree that many “Android-powered” phones are actually better classified as feature phones - great for text messaging, but lacking mobile browsers or apps.  Nielsen is then unable to distinguish Android-powered feature phones from smartphones and simply assumes any Android-powered phone must be a smartphone. Alternatively, AT&T and Verizon data is pretty straight forward with no confusion between feature phones and smartphones.  I don’t think the shipped vs. sold argument is as relevant for mobile phones because the sales numbers being thrown around are much higher than that of the much smaller tablet market. 

Looking Ahead

iPhone 4S sales are off to a fast start. Upcoming sales data points that I will be looking for will come from Apple, AT&T, Verizon, and Sprint. Until Nielsen, and other market survey companies, reveal where they are getting their data and how it is being calculated, I don’t think it should be relied on for investment or app development decisions.