A Complete Breakdown of Apple's (AAPL) Blockbuster Q1 Results
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Price: $169.36 +0.20%
Rating Summary:
39 Buy, 25 Hold, 7 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 10 | Down: 12 | New: 7
Rating Summary:
39 Buy, 25 Hold, 7 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 10 | Down: 12 | New: 7
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Unless you live under a rock, you know that Apple (Nasdaq: AAPL) absolutely crushed its first quarter estimates last night.
The iPad and iPhone maker reported Q1 EPS of $6.43, easily beating the Street consensus of $5.36. Sales were $26.74 billion, versus the consensus of $24.34 billion. Apple sees Q2 earnings of $4.90 per share on revenue of $22 billion, compared to the Street's view of $4.47 per share and $20.87 billion respectively.
Today, Wall Street is feeling pretty good about the stock despite Steve Jobs leave of absence news.
As would be expected, across the Street everyone is raising estimates and price targets, much with the same things to say. So below we review some of today's key research calls on Apple, highlighting unique commentary from various firms on a number of Apple datapoints, providing you a complete breakdown of Apple's results.
Margins:
Goldman Sachs: "Apple's new products have historically enjoyed healthy gross margin accretion over their lifecycle, and we believe the iPad is no different. Indeed, we believe both the iPad and iPhone 4 enjoyed healthy gross margin improvement in the quarter, and we expect this to continue. While Apple is typically conservative with its gross margin outlook, the company guided for the higher-than-expected December quarter margins to remain flat in the March quarter. We believe this is far better than most investors anticipated, and it should reinvigorate optimism on Apple's longer-term earnings power. Reiterated Conviction Buy list rating, target from $430 to $450.
iPads
Susquehanna: "iPad growth accelerates, with plenty of country expansion left. Distribution channels for the iPad ramped significantly in the quarter, particularly in retail in the U.S., while Apple added +20 more countries of distribution to get to 46 countries and has already added +15 new countries in the month of January alone. This compares to about 90 countries where the iPhone is sold. The resulting iPad shipments of 7.3 mln (up 75% Q.Q) were well above our 5.4 mln estimate and consensus of 6.4 mln. With inventory in the 4-6 week range (growing 525K Q/Q), we believe production must have been closer to 9 mln in the quarter compared to our build forecast of 7 mln-8 mln. We are modeling a sequential decline in the March quarter given seasonality and a lull before the expected refresh in late March/early April, which we believe will be well-received. The company highlighted demand strength in consumer, education, and enterprise, with more than 80% of Fortune 100 companies now deploying or piloting the iPad (up from 65% in September and 50% in June)." Maintains Positive rating, raises price target from $390 to $445.
iPhones
Wedbush: Apple sold 16.2 million iPhones, up 86% YoY and above our estimate of 15.1 million units. This compares to our estimated smartphone market growth estimate of 67% YoY, indicating Apple continues to gain market share. We expect market share gains to be enhanced by the CDMA iPhone at Verizon, which we also expect to find its way into other CDMA operators in Asia later this year. Management indicated it could not meet all demand and now distributes through 185 carriers in 90 countries. We would point out this is ~1/3rd the distribution RIM currently has. We continue to see Apple- and Android-based smartphones gaining market share from Nokia and RIM. Management also indicated it saw build costs come in better than expected. iPhone ASPs were $625, above our estimate of $613." Maintains Outperform rating, raises price target from $405 to $430.
Macs
Canaccord Genuity: Apple reported sales of 1.2M Mac desktops and 2.9M MacBooks during the December quarter with unit sales growth outpacing the market growth rates in all geographies. In fact, Mac unit growth continued despite the large increase in iPad sales, and we believe this demonstrates the halo effect from iPhone and iPad sales to increase Mac sales and we believe this effect offsets any potential cannibalization of MacBooks due to iPad. Going forward, we expect overall Mac sales to continue to outpace industry unit growth rates and for the halo effect to continue as strong iPhone sales into the APAC region in particular could lead to increased penetration on Mac products into under-penetrated markets." Maintain Buy, raises price target to $432.
International
Ticonderoga: International markets represented 62% of the total revenue, up from 57% from the previous quarter, with strong sequential growth experienced across most geographies. Retail (up 41% Q/Q) and Asia Pacific (up 40% Q/Q; includes File Maker) experienced the strongest sequential growth, while Europe (up 33% Q/Q) and Americas (up 28% Q/Q) also benefited from strong holiday sales. The Americas continues to represent the biggest market, contributing 34.5% of 1QFY11 revenue and Europe at 27.1%, with Asia Pacific and File Maker (18.6%), Retail (14.4%) and Japan (5.4%) accounting for the rest. Last night, Apple highlighted that management had identified Greater China (Mainland China, Hong Kong and Taiwan) as its top priority amongst the BRIC countries many years ago, channeling its efforts to develop the market. In 1QFY11, Apple generated $2.6 billion in revenue (~10% of sales) from Greater China compared with the ~$3 billion in sales achieved for all of fiscal 2010. Recall, in October last year, we had highlighted that the buzz around the iPad and iPhone 4 in China was much stronger than previous Apple product launches. Furthermore, during our China Technology Tour last month, China Unicom (CHU, $14.82, NR) highlighted stronger than expected demand for the iPhone 4, as a result of which the carrier was unable to fulfill around one-third of the pre-orders. Wait times for the iPhone 4 in China was two months during our visit. Apple highlighted that in 1QFY11, its four stores in China experienced the highest average traffic and the highest revenues in the world. Note that the high-end mobile phone opportunity in China is estimated to be approximately 100-125 million subscribers. Total wireless subscribers in China came in at 833 million at the end of November. We are long-term bulls on Apple's position in the China market, and we wonder when the company will begin to gain momentum in India. Maintains Buy, raises price target from $450 to $550.
ASPs
Deutsche Bank: Desktop ASPs increased 3% Y/Y to $1,411, while notebook ASPs of $1,272 were down 2% Y/Y. iPod ASPs of $176 were up 9% Y/Y driven by a strong uptake in iPod Touch. ASPs in the Mac, iPod and iPhone increased Q/Q. Maintains Buy rating, raises price target from $410 to $440.
Guidance
Kaufman Bros: "For its outlook, AAPL guided the March quarter much more upbeat than usual to $22 billion in revenue and $4.90 in EPS, vs. consensus at $20.6 billion and $4.43 in EPS. In addition, gross margin guidance was also surprisingly robust at 38.5%, flat Q/Q against a big beat. As we said in our preview, we believe this is due to the ramp of the VZ iPhone, which we picked up from supply chain sources to comparably profitable to AT&T. For fiscal 2011, we are now at $97.9 billion in revenue and $22.75 in EPS (from $90.5 billion and $19.85 in EPS). Our new 12-month price target is $438 (from $415) based on 16x our new CY11 EPS of $23.35 (from $21.22) plus $64 in net cash." Maintains Buy rating, raises price target from $415 to $438.
Cash
BGC: "AAPL has $59.7B in cash ($63.98 / share) and no long term debt as of December 25, 2010. The company generated $9.7B in cash from operations in its last reported quarter. Cash on the balance sheet increased by $8.7B sequentially. Our take is Apple is not using its cash balance effectively and should return cash to shareholders."
R&D
Janney Montgomery Scott: "R&D was $575 million, above our estimate of $525 million. We continue to believe R&D and technology development is a key to the bull case for Apple; therefore we expect Apple to maintain a high level of R&D spending. SG&Awas~$1.9 billion, slightly below our estimate of ~$2.0 billion. Maintains Buy, raises target from $395 to $430.
Steve Jobs' Health:
Brigantine: "Based on the severe reaction to Apple's shares on Tuesday, January 18, on the news that Apple's CEO, Steve Jobs, requested an extended leave for medical reasons, we believe his full resignation, or worse, could be reflected more drastically in Apple's share price. We have argued that Jobs' clear product brilliance and passion for excellence is no longer as significant in driving Apple forward. Given the extent of Jobs' influence over Apple's culture for the length of time he has led the company implies that he has imbued a sustainable culture within the organization that we see carrying on beyond his personal leadership. Each division of the company is responsible for bringing new, exciting, user friendly products to market, and we believe that course should continue regardless of Jobs' presence at Apple. That said, as recent trading has illustrated, our belief is currently not well shared on Wall Street." Reiterate Buy, $400 price target.
Verizon, Other CDMA Operators:
UBS: What we expect could be the largest pre-order & sales ever experienced by Verizon Wireless for the iPhone... We see potential further iPhone expansion to other CDMA operators, which have a combined subscriber base of ~120mn in China and Japan alone, as large opportunities. Though we recognize that only a portion of China could be addressable given demographics, every incremental 1mn units annually would result in ~$0.24, all else equal." Reiterate Buy, raises price target from $415 to $465.
UPDATE: Click here to see some highlights from Apple's Q1 conference call.
The iPad and iPhone maker reported Q1 EPS of $6.43, easily beating the Street consensus of $5.36. Sales were $26.74 billion, versus the consensus of $24.34 billion. Apple sees Q2 earnings of $4.90 per share on revenue of $22 billion, compared to the Street's view of $4.47 per share and $20.87 billion respectively.
Today, Wall Street is feeling pretty good about the stock despite Steve Jobs leave of absence news.
As would be expected, across the Street everyone is raising estimates and price targets, much with the same things to say. So below we review some of today's key research calls on Apple, highlighting unique commentary from various firms on a number of Apple datapoints, providing you a complete breakdown of Apple's results.
Margins:
Goldman Sachs: "Apple's new products have historically enjoyed healthy gross margin accretion over their lifecycle, and we believe the iPad is no different. Indeed, we believe both the iPad and iPhone 4 enjoyed healthy gross margin improvement in the quarter, and we expect this to continue. While Apple is typically conservative with its gross margin outlook, the company guided for the higher-than-expected December quarter margins to remain flat in the March quarter. We believe this is far better than most investors anticipated, and it should reinvigorate optimism on Apple's longer-term earnings power. Reiterated Conviction Buy list rating, target from $430 to $450.
iPads
Susquehanna: "iPad growth accelerates, with plenty of country expansion left. Distribution channels for the iPad ramped significantly in the quarter, particularly in retail in the U.S., while Apple added +20 more countries of distribution to get to 46 countries and has already added +15 new countries in the month of January alone. This compares to about 90 countries where the iPhone is sold. The resulting iPad shipments of 7.3 mln (up 75% Q.Q) were well above our 5.4 mln estimate and consensus of 6.4 mln. With inventory in the 4-6 week range (growing 525K Q/Q), we believe production must have been closer to 9 mln in the quarter compared to our build forecast of 7 mln-8 mln. We are modeling a sequential decline in the March quarter given seasonality and a lull before the expected refresh in late March/early April, which we believe will be well-received. The company highlighted demand strength in consumer, education, and enterprise, with more than 80% of Fortune 100 companies now deploying or piloting the iPad (up from 65% in September and 50% in June)." Maintains Positive rating, raises price target from $390 to $445.
iPhones
Wedbush: Apple sold 16.2 million iPhones, up 86% YoY and above our estimate of 15.1 million units. This compares to our estimated smartphone market growth estimate of 67% YoY, indicating Apple continues to gain market share. We expect market share gains to be enhanced by the CDMA iPhone at Verizon, which we also expect to find its way into other CDMA operators in Asia later this year. Management indicated it could not meet all demand and now distributes through 185 carriers in 90 countries. We would point out this is ~1/3rd the distribution RIM currently has. We continue to see Apple- and Android-based smartphones gaining market share from Nokia and RIM. Management also indicated it saw build costs come in better than expected. iPhone ASPs were $625, above our estimate of $613." Maintains Outperform rating, raises price target from $405 to $430.
Macs
Canaccord Genuity: Apple reported sales of 1.2M Mac desktops and 2.9M MacBooks during the December quarter with unit sales growth outpacing the market growth rates in all geographies. In fact, Mac unit growth continued despite the large increase in iPad sales, and we believe this demonstrates the halo effect from iPhone and iPad sales to increase Mac sales and we believe this effect offsets any potential cannibalization of MacBooks due to iPad. Going forward, we expect overall Mac sales to continue to outpace industry unit growth rates and for the halo effect to continue as strong iPhone sales into the APAC region in particular could lead to increased penetration on Mac products into under-penetrated markets." Maintain Buy, raises price target to $432.
International
Ticonderoga: International markets represented 62% of the total revenue, up from 57% from the previous quarter, with strong sequential growth experienced across most geographies. Retail (up 41% Q/Q) and Asia Pacific (up 40% Q/Q; includes File Maker) experienced the strongest sequential growth, while Europe (up 33% Q/Q) and Americas (up 28% Q/Q) also benefited from strong holiday sales. The Americas continues to represent the biggest market, contributing 34.5% of 1QFY11 revenue and Europe at 27.1%, with Asia Pacific and File Maker (18.6%), Retail (14.4%) and Japan (5.4%) accounting for the rest. Last night, Apple highlighted that management had identified Greater China (Mainland China, Hong Kong and Taiwan) as its top priority amongst the BRIC countries many years ago, channeling its efforts to develop the market. In 1QFY11, Apple generated $2.6 billion in revenue (~10% of sales) from Greater China compared with the ~$3 billion in sales achieved for all of fiscal 2010. Recall, in October last year, we had highlighted that the buzz around the iPad and iPhone 4 in China was much stronger than previous Apple product launches. Furthermore, during our China Technology Tour last month, China Unicom (CHU, $14.82, NR) highlighted stronger than expected demand for the iPhone 4, as a result of which the carrier was unable to fulfill around one-third of the pre-orders. Wait times for the iPhone 4 in China was two months during our visit. Apple highlighted that in 1QFY11, its four stores in China experienced the highest average traffic and the highest revenues in the world. Note that the high-end mobile phone opportunity in China is estimated to be approximately 100-125 million subscribers. Total wireless subscribers in China came in at 833 million at the end of November. We are long-term bulls on Apple's position in the China market, and we wonder when the company will begin to gain momentum in India. Maintains Buy, raises price target from $450 to $550.
ASPs
Deutsche Bank: Desktop ASPs increased 3% Y/Y to $1,411, while notebook ASPs of $1,272 were down 2% Y/Y. iPod ASPs of $176 were up 9% Y/Y driven by a strong uptake in iPod Touch. ASPs in the Mac, iPod and iPhone increased Q/Q. Maintains Buy rating, raises price target from $410 to $440.
Guidance
Kaufman Bros: "For its outlook, AAPL guided the March quarter much more upbeat than usual to $22 billion in revenue and $4.90 in EPS, vs. consensus at $20.6 billion and $4.43 in EPS. In addition, gross margin guidance was also surprisingly robust at 38.5%, flat Q/Q against a big beat. As we said in our preview, we believe this is due to the ramp of the VZ iPhone, which we picked up from supply chain sources to comparably profitable to AT&T. For fiscal 2011, we are now at $97.9 billion in revenue and $22.75 in EPS (from $90.5 billion and $19.85 in EPS). Our new 12-month price target is $438 (from $415) based on 16x our new CY11 EPS of $23.35 (from $21.22) plus $64 in net cash." Maintains Buy rating, raises price target from $415 to $438.
Cash
BGC: "AAPL has $59.7B in cash ($63.98 / share) and no long term debt as of December 25, 2010. The company generated $9.7B in cash from operations in its last reported quarter. Cash on the balance sheet increased by $8.7B sequentially. Our take is Apple is not using its cash balance effectively and should return cash to shareholders."
R&D
Janney Montgomery Scott: "R&D was $575 million, above our estimate of $525 million. We continue to believe R&D and technology development is a key to the bull case for Apple; therefore we expect Apple to maintain a high level of R&D spending. SG&Awas~$1.9 billion, slightly below our estimate of ~$2.0 billion. Maintains Buy, raises target from $395 to $430.
Steve Jobs' Health:
Brigantine: "Based on the severe reaction to Apple's shares on Tuesday, January 18, on the news that Apple's CEO, Steve Jobs, requested an extended leave for medical reasons, we believe his full resignation, or worse, could be reflected more drastically in Apple's share price. We have argued that Jobs' clear product brilliance and passion for excellence is no longer as significant in driving Apple forward. Given the extent of Jobs' influence over Apple's culture for the length of time he has led the company implies that he has imbued a sustainable culture within the organization that we see carrying on beyond his personal leadership. Each division of the company is responsible for bringing new, exciting, user friendly products to market, and we believe that course should continue regardless of Jobs' presence at Apple. That said, as recent trading has illustrated, our belief is currently not well shared on Wall Street." Reiterate Buy, $400 price target.
Verizon, Other CDMA Operators:
UBS: What we expect could be the largest pre-order & sales ever experienced by Verizon Wireless for the iPhone... We see potential further iPhone expansion to other CDMA operators, which have a combined subscriber base of ~120mn in China and Japan alone, as large opportunities. Though we recognize that only a portion of China could be addressable given demographics, every incremental 1mn units annually would result in ~$0.24, all else equal." Reiterate Buy, raises price target from $415 to $465.
UPDATE: Click here to see some highlights from Apple's Q1 conference call.
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