Rest of the year – setting expectation on Apple and AAPL
Ever since Apple stock AAPL passed over $700 and then fell back to sub $400, I have been telling clients to be patient and not have ridiculous expectations. Those thoughts became most prevalent after Apple did not refresh the iPad this March. The effect was visible in the third quarter financial breakdown. Apple reported a 14% year over year drop in iPad unit sales, a decline of more than 2.4 million units. As large as that seems, it doesn’t even take into account the fact that there was no iPad mini in last year’s Q3 period. Thanks to the unit sales drop, along with the cheaper priced mini, Apple reported a 27% decline in iPad revenue dollars for the quarter. That’s a decline of more than $2.4 billion, $72 million dollars more than the increase we saw in iPhone revenues. You can certainly understand now why total revenues were up just $300 million from the year ago period. It’s hard to show a lot of growth when your second leading revenue product has a $2.4 billion dollar decline. Throw in another $367 million in declines from the iPod and Mac lines, and Apple was set up for a sluggish quarter.
The current Q4 is also forecasted to be very sluggish, with current estimates calling a slight decline in year over year revenues. Again, this is something I’ve been discussing, and it is not that much of a surprise. Apple sold over 14.03 million iPads in Q4 last year, and those were all higher priced regular models of the device. The company sold 14.62 million in this year’s Q3, and that included a fair amount of iPad minis. If Apple does not launch a new iPad in the next week or two, we could see another revenue drop-off in the billions. Throw in the fact that last year’s Q4 saw Mac unit sales of more than 4.92 million, and that will be another chunk of revenues gone. The obvious question is can the iPhone save this quarter, and that will depend on what happens next week.
The latest news and rumors:
So that gets us to next week. By now, you has probably heard that Apple sent out invitations for a September 10th (Tuesday) event. The expectation is that Apple will launch a new iPhone, called the 5S, along with a cheaper version to be named the 5C. These phones may even come in a variety of colors. None of this should be shocking, as we’ve heard a continuation of these rumors for many months now. It would be expected that these phones would go on sale 10 days later, probably Friday, September 20th. The second to last Friday of the month was when Apple launched the iPhone 5 last year, so this year’s timing would mirror that launch. The launch also seems to be confirmed by vacation blackouts at large US carriers such as AT&T. When phone carriers are not letting employees go on vacation for a weekend or part of a month, it usually means something big is coming. The launch of a new iPhone (and potentially multiples) would certainly be significant.
Last Wednesday, we heard that Apple scheduled an event in China for the following day, September 11th. This has fuelled a number of rumours that Apple will be partnering up with China Mobile, the world’s largest carrier by far, which would be a tremendous opportunity for Apple. ISI analyst Brian Marshall believes that the China Mobile opportunity would almost equal the size of Apple’s unit sales from AT&T and Verizon combined. News like this could send Apple shares spiking much higher. The latest reports on Thursday state that Apple could even start selling their new phones in China on the same day as in the US. Last year, it was more than two months after the US launch when they went on sale in China.
We also heard from Nikkei that Apple could announce a partnership with NTT DoCoMo next week at its Tokyo satellite event. DoCoMo, Japan’s largest carrier, has roughly 60 million subs, of which 1/4 are using 4G phones. DoCoMo has been losing market share to Softbank because of DoCoMo’s failure to carry the Apple iPhone. This news could bring another few million iPhone sales per year to Apple. While a potential deal between Apple and DoCoMo wouldn’t be as large as a China Mobile one, a larger portion of DoCoMo’s sub base can afford a more expensive phone.
What else could be in the cards? Well, there have been some rumours of a potential Apple TV set-top device to be launched next week as well. MacRumors pointed out that nearly 550 days have passed since the Apple TV received its latest refresh, almost 50% more than the historical average of 377. Apple consumers and investors have been looking for something more than just iPhone and iPad refreshes (along with a cheaper phone), so this might just do the trick.
The last rumour I’ll discuss is more of a longer-term one. The Wall Street Journal is reporting that Apple has begun to evaluate a plan to offer iPhones with screens from 4.8 to 6 inches, as opposed to the 4 inch displays expected to be shown off next week. Apple has been very unwilling to go to a larger screen in recent years, but now they appear headed down that track. There have been calls for Apple to go to a large screen for some time now, and the ball now seems to be rolling.