The stock isn't down because of their earnings, it is down because the company's future forecast is looking rather bleak. (Bleak in the sense that Apple may not be the growth company it once was, but a sold, developed company that is capable of producing solid profits every quarter. Solid, but nothing like the sheer growth they were capable of over the past few years.
There's nothing that says that Apple isn't growing. Their sales were up substantially last quarter and profit was flat - even with one less week.
More importantly, even if Apple were to not grow at all, their share price is far too low. At 7 times forward cash-adjusted earnings, their P/E is far, far below what it should be even without any growth.
Apple's profit margins are dropping, due to being forced by competitors.
Google and Amazon are very scary to Apple's bottom line because they don't give a crap about hardware profits. Google would put a nexus 7 in every cereal box if it could.
I think all would agree that competition is putting pressure on profit margins, that's not a bad thing in the long term.
Tim Cook's comment during conference call alluded to that and then some...regarding cannibalization, he said that it can be good in that Apple offers lower priced options that would cannibalize some, but that it attracts new customers to the ecosystem. Those new customers realize the quality of Apple and which then expand/upgrade (i.e. halo) to more and higher cost purchases in the future. Apple is already seeing evidence of that.
And then leave the cereal box products for the low margin, low quality market.
But by far the biggest threat to Apple is the Telecom Subsidy economy going bust in the U.S.
Apple should be doing whatever it can to make sure T. mobiles plan of eliminating phone subsidy fails. Because if it does work and get adopted by the other telecoms, well that $600+ iphone is not going to cut it.
Subsidy, schmubsidy, it won't matter much.
...and so what?...potential phone buyers can then buy an iPhone 4 or iPhone 4S at way less than $600.
Further, there will be a new iPhone or two this year.
Okay, the quarters were different lengths of time.
"Flat" my tushy.
When it comes to the YoY results the quarter is the quarter. We can denote the difference in length, that Apple netted more than $1 billion in profit YoY, and that their daily and weekly take was higher but it doesn't change the fact that 1Q2012 and 1Q2013 both saw a $13.1 billion dollar net profit.
It's not hilarious. Gross Margin is down from 44% to 38% That's a serious move. 2-3% would have been more in line. Stocks trade on forward potential, not past results - Apple may have had an ungodly quarter, but the future doesn't look as exponential; that's the key.
This post was made before the Q & A period where Tim explained that they are now directly charging the products for various costs there earlier were being chopped up and assessed according to a formula or estimates. This is a finer granulation of accounting and that may have negatively affected the GMs in some way.
Dell and HP would KILL for these kinds of gross margins.
No it suggests that some minis were sold. If a majority were minis you would expect the drop to be closer to 85. This isn't alarming or surprising. The mini was a fresh new product. The regular was a small upgrade that added a faster processor and the lightning connector.
Conference call seemed to confirm that demand for mini was incredible and continues into this qtr.
Appears that supply constraint limited mini revenue. So last qtr GM could've been worse if it weren't for constraint of mini (though revenue would've been higher as well)
Supply of mini this qtr to greatly increase. i would anticipate margin reduction (as % of cost) this qtr for iPads.
HOWEVER, lets not forget one interesting comment made, something to effect that increase in mini purchases is out weighing the relative margin reduction. That was an extremely positive note.
This is the most hilarious part of people having a negative reaction (after filtering out the morons who want to create a different set of rules for AAPL). First, Apple already stated in the last earnings call that gross margin would shrink in this latest quarter. And they said why. Large capital investments for so many simultaneous product launches - iPhone 5, iPad mini, new iPods, and the new iMac. They already explained it three months ago. What they also explained is that gross margin would return over time.
Good post. I would just caution regarding GM to return over time. I don't recall that specifically (unless that statement was made about a specific product). But please reference, as I'd like to review.
I was under the impression that GM is probably going to hover here for awhile and not predicted to increase much. I think that competitors would KILL for 39% GM anyway. And that 39% GM shouldn't hurt share prices at all. It'll come down to revenue/brand growth than merely GM. I hate to say it, but it's just the nature of things.
Good post. I would just caution regarding GM to return over time. I don't recall that specifically (unless that statement was made about a specific product). But please reference, as I'd like to review.
I was under the impression that GM is probably going to hover here for awhile and not predicted to increase much. I think that competitors would KILL for 39% GM anyway. And that 39% GM shouldn't hurt share prices at all. It'll come down to revenue/brand growth than merely GM. I hate to say it, but it's just the nature of things.
That along with a stronger U.S. dollar, and the change in gross margin, so let me talk to you about what we see for gross margin, but I’m going to go through some detail on a sequential basis, but not year-over-year.
As you pointed out, this is the most prolific product period in Apple’s history. We have an unprecedented number of new product introductions over the last six weeks, and this has led to record levels of demand. New or re-priced versions of our products announced during this time frame represent over 80% of the total expected December quarter revenue.
But there are costs associated with such dramatic change and demand. The iPhone 5, iPad Mini, iMac, MacBook Pro 13-inch, iPod Touch and iPod Nano have completely new form factors with great new features, and we’ve never before introduced so many new form factors at once. All of these products have higher costs than their predecessors, and therefore lower gross margins as they are at the height of the cost curve.
I'll repeat. Only morons don't understand the margin pressures in the last quarter due to a high number of product launches. Not because they can't figure it out themselves, but because they don't even bother to listen to what Apple said three months ago. Any analyst who is less than useless knew that margin would be way down for the quarter. So that was already built into the stock price.
Margins dipping was already a big part of the stock sinking for the last few months, because margins dipping is part of transitioning to new products.
However, cutting component orders due to bigger yields, meaning higher margins on the horizon, pushed the stock down again.
And when the long-talked-about lower margins are confirmed, the stock goes down yet again.
So good news is bad news, bad news is bad news, and bad news already priced in is cause for further price drops.
As for projections, Apple is always on the conservative side of things, plus they have to manage the out-of-this-world expectations of the market. I mean, if you're already stretching your manufacturer's production lines to over capacity to the point where they have to work full throttle through the most important Chinese holidays, exactly how much can you really grow sales? You can't sell what you can't produce, and people (investors), have to finally start to understand numbers. One can arbitrarily add zeroes to numbers and print money with synthetic credit instruments. One can't arbitrarily increase production of a physical product that requires physical components that need to be physically transported from various places in the world to various other places in the world. The supply chain management that Apple has is absolutely stellar. But for them it's never good enough.
I'm very satisfied with 38.6% margins. I'm probably most curious about iPhone number being a little low...why? Everything else seemed predictable.
The iPhone 5 had initial production issues, so it wasn't selling as fast as demand allowed.
Also, I'd hardly call the number low, it's very solid growth year over year, so it's more a matter of expectations to be unrealistically high.
Lastly, all the overblown talk about the "Map-Gate" may have had a small impact; people shouldn't forget that Apple's competition also has rather deep pockets, pockets deep enough to pay publicists to spread stories that damage Apple's sales, even a small percentage is worth a lot of money to them.
Ironically, though, iPhone users use the new map functionality more than they used the old one... Go figure, so much for the "horrible" new maps.
Very important points indeed. Having said that, doesn't Apple always provide guidance lower than analysts' projections? But the second point is critical. EPS did not improve at all y/y. Is this due to the free iPhone4 or the lower margin of iPad Mini? In either case, the trend may continue.
It's due to several things:
1. This year's quarter had 13 weeks vs 14 weeks in the same quarter last year. So they made 8% more per week than last year.
2. Last year, they didn't have any significant new product introductions in the period. This year, they had several - and those are very expensive. They also had supply constraints on several of their key new products.
3. For some reason, they weren't selling the iMac at all for most of the quarter.
4. PC sales as a whole declined significantly this quarter. Last year, they were flat.
Given those constraints, flat profits are actually not unreasonable.
Thanks for citing the 36% GM. I do recall the explanation of that quarter, but what I was inquiring about comments in specific regards to when you said, "...gross margin returning over time". But I guess that might be slightly inferred (that margins would return since Q4 was such an anomaly).
I don't think you understand the concept of a P/E ratio and how/why it's fundamentally a verdict on a company's future growth prospects, not its "current health."
Best to move along.....
Forward P/E has to do with growth, and of course it's dependent on net income increasing. Here's a story for you:
The very first stock I invested in was a solar company that was recording record earnings, record revenues and was the biggest in the market. It had a P/E of around 6, and forward P/E of around 4. It recorded record earnings while I had shares, and then subsequently tanked. Why? Because the shorts and other investors much more sophisticated than I saw past those fundamentals, and knew that a supply glut was heading to the market, which would drive prices down and squeeze out companies. I sold my shares after losing 30% of their value, had I held on I would have lost 95%. Despite the fundamentals which looked great, the shorts were right, that company went on to lose alot of money, their margins today are at around 0, and they got caught up in a fraud in Italy. I learned my lesson.
Yes, P/E ratio can be a very basic measure of a company's current profitability and growth potential, but it doesn't tell the whole story. Like Amazon - big cash flow, good margins, great revenue, but net loss. Not because they're a bad company, but because they aggressively reinvest, and actively aim to keep the net profit they book low.
BTW, my Lenovo stock went up 6.32% last night in Hong Kong , after gaining 2%+ the night before.
Comments
There's nothing that says that Apple isn't growing. Their sales were up substantially last quarter and profit was flat - even with one less week.
More importantly, even if Apple were to not grow at all, their share price is far too low. At 7 times forward cash-adjusted earnings, their P/E is far, far below what it should be even without any growth.
Quote:
Originally Posted by Techstalker
Apple's profit margins are dropping, due to being forced by competitors.
Google and Amazon are very scary to Apple's bottom line because they don't give a crap about hardware profits. Google would put a nexus 7 in every cereal box if it could.
I think all would agree that competition is putting pressure on profit margins, that's not a bad thing in the long term.
Tim Cook's comment during conference call alluded to that and then some...regarding cannibalization, he said that it can be good in that Apple offers lower priced options that would cannibalize some, but that it attracts new customers to the ecosystem. Those new customers realize the quality of Apple and which then expand/upgrade (i.e. halo) to more and higher cost purchases in the future. Apple is already seeing evidence of that.
And then leave the cereal box products for the low margin, low quality market.
Quote:
Originally Posted by Techstalker
But by far the biggest threat to Apple is the Telecom Subsidy economy going bust in the U.S.
Apple should be doing whatever it can to make sure T. mobiles plan of eliminating phone subsidy fails. Because if it does work and get adopted by the other telecoms, well that $600+ iphone is not going to cut it.
Subsidy, schmubsidy, it won't matter much.
...and so what?...potential phone buyers can then buy an iPhone 4 or iPhone 4S at way less than $600.
Further, there will be a new iPhone or two this year.
When it comes to the YoY results the quarter is the quarter. We can denote the difference in length, that Apple netted more than $1 billion in profit YoY, and that their daily and weekly take was higher but it doesn't change the fact that 1Q2012 and 1Q2013 both saw a $13.1 billion dollar net profit.
Quote:
Originally Posted by thataveragejoe
It's not hilarious. Gross Margin is down from 44% to 38% That's a serious move. 2-3% would have been more in line. Stocks trade on forward potential, not past results - Apple may have had an ungodly quarter, but the future doesn't look as exponential; that's the key.
This post was made before the Q & A period where Tim explained that they are now directly charging the products for various costs there earlier were being chopped up and assessed according to a formula or estimates. This is a finer granulation of accounting and that may have negatively affected the GMs in some way.
Dell and HP would KILL for these kinds of gross margins.
Quote:
Originally Posted by ndirishfan1975
No it suggests that some minis were sold. If a majority were minis you would expect the drop to be closer to 85. This isn't alarming or surprising. The mini was a fresh new product. The regular was a small upgrade that added a faster processor and the lightning connector.
Conference call seemed to confirm that demand for mini was incredible and continues into this qtr.
Appears that supply constraint limited mini revenue. So last qtr GM could've been worse if it weren't for constraint of mini (though revenue would've been higher as well)
Supply of mini this qtr to greatly increase. i would anticipate margin reduction (as % of cost) this qtr for iPads.
HOWEVER, lets not forget one interesting comment made, something to effect that increase in mini purchases is out weighing the relative margin reduction. That was an extremely positive note.
Quote:
Originally Posted by focher
This is the most hilarious part of people having a negative reaction (after filtering out the morons who want to create a different set of rules for AAPL). First, Apple already stated in the last earnings call that gross margin would shrink in this latest quarter. And they said why. Large capital investments for so many simultaneous product launches - iPhone 5, iPad mini, new iPods, and the new iMac. They already explained it three months ago. What they also explained is that gross margin would return over time.
Good post. I would just caution regarding GM to return over time. I don't recall that specifically (unless that statement was made about a specific product). But please reference, as I'd like to review.
I was under the impression that GM is probably going to hover here for awhile and not predicted to increase much. I think that competitors would KILL for 39% GM anyway. And that 39% GM shouldn't hurt share prices at all. It'll come down to revenue/brand growth than merely GM. I hate to say it, but it's just the nature of things.
Quote:
Originally Posted by drewys808
Good post. I would just caution regarding GM to return over time. I don't recall that specifically (unless that statement was made about a specific product). But please reference, as I'd like to review.
I was under the impression that GM is probably going to hover here for awhile and not predicted to increase much. I think that competitors would KILL for 39% GM anyway. And that 39% GM shouldn't hurt share prices at all. It'll come down to revenue/brand growth than merely GM. I hate to say it, but it's just the nature of things.
Actually, in the 2012 Q4 earnings call Apple predicted a 36% gross margin (see http://seekingalpha.com/article/952971-apple-s-ceo-discusses-f4q12-results-earnings-call-transcript?part=single). Quoting Peter Oppenheimer, the CFO:
Quote:
That along with a stronger U.S. dollar, and the change in gross margin, so let me talk to you about what we see for gross margin, but I’m going to go through some detail on a sequential basis, but not year-over-year.
As you pointed out, this is the most prolific product period in Apple’s history. We have an unprecedented number of new product introductions over the last six weeks, and this has led to record levels of demand. New or re-priced versions of our products announced during this time frame represent over 80% of the total expected December quarter revenue.
But there are costs associated with such dramatic change and demand. The iPhone 5, iPad Mini, iMac, MacBook Pro 13-inch, iPod Touch and iPod Nano have completely new form factors with great new features, and we’ve never before introduced so many new form factors at once. All of these products have higher costs than their predecessors, and therefore lower gross margins as they are at the height of the cost curve.
I'll repeat. Only morons don't understand the margin pressures in the last quarter due to a high number of product launches. Not because they can't figure it out themselves, but because they don't even bother to listen to what Apple said three months ago. Any analyst who is less than useless knew that margin would be way down for the quarter. So that was already built into the stock price.
No, we know why the stock is where it's at. Total manipulation based on the option spread. http://www.businessweek.com/articles/2013-01-22/an-apple-conspiracy-theories-on-the-500-close
LOL That would be hilarious but is that even possible?
Quote:
Originally Posted by island hermit
Quote:
Originally Posted by rob53
And AAPL tanks. When will the SEC fix this mess?
2 things being looked at:
1. Q2 projection is below analysts projections
2. Margins have dipped considerably
Margins dipping was already a big part of the stock sinking for the last few months, because margins dipping is part of transitioning to new products.
However, cutting component orders due to bigger yields, meaning higher margins on the horizon, pushed the stock down again.
And when the long-talked-about lower margins are confirmed, the stock goes down yet again.
So good news is bad news, bad news is bad news, and bad news already priced in is cause for further price drops.
As for projections, Apple is always on the conservative side of things, plus they have to manage the out-of-this-world expectations of the market. I mean, if you're already stretching your manufacturer's production lines to over capacity to the point where they have to work full throttle through the most important Chinese holidays, exactly how much can you really grow sales? You can't sell what you can't produce, and people (investors), have to finally start to understand numbers. One can arbitrarily add zeroes to numbers and print money with synthetic credit instruments. One can't arbitrarily increase production of a physical product that requires physical components that need to be physically transported from various places in the world to various other places in the world. The supply chain management that Apple has is absolutely stellar. But for them it's never good enough.
Quote:
Originally Posted by drewys808
I'm very satisfied with 38.6% margins. I'm probably most curious about iPhone number being a little low...why? Everything else seemed predictable.
The iPhone 5 had initial production issues, so it wasn't selling as fast as demand allowed.
Also, I'd hardly call the number low, it's very solid growth year over year, so it's more a matter of expectations to be unrealistically high.
Lastly, all the overblown talk about the "Map-Gate" may have had a small impact; people shouldn't forget that Apple's competition also has rather deep pockets, pockets deep enough to pay publicists to spread stories that damage Apple's sales, even a small percentage is worth a lot of money to them.
Ironically, though, iPhone users use the new map functionality more than they used the old one... Go figure, so much for the "horrible" new maps.
It's due to several things:
1. This year's quarter had 13 weeks vs 14 weeks in the same quarter last year. So they made 8% more per week than last year.
2. Last year, they didn't have any significant new product introductions in the period. This year, they had several - and those are very expensive. They also had supply constraints on several of their key new products.
3. For some reason, they weren't selling the iMac at all for most of the quarter.
4. PC sales as a whole declined significantly this quarter. Last year, they were flat.
Given those constraints, flat profits are actually not unreasonable.
Quote:
Originally Posted by cameronj
Up from where it closed at 4 today
How's that working out.
[... I know... it's a long day ahead still
Quote:
Originally Posted by Mikeb85
No, but Apple's stock has a long history of large moves after earnings... It almost always moves 5%+
Not true.
Quote:
Originally Posted by focher
Actually, in the 2012 Q4 earnings call Apple predicted a 36% gross margin (see http://seekingalpha.com/article/952971-apple-s-ceo-discusses-f4q12-results-earnings-call-transcript?part=single). Quoting Peter Oppenheimer, the CFO:
Thanks for citing the 36% GM. I do recall the explanation of that quarter, but what I was inquiring about comments in specific regards to when you said, "...gross margin returning over time". But I guess that might be slightly inferred (that margins would return since Q4 was such an anomaly).
Quote:
Originally Posted by anantksundaram
I don't think you understand the concept of a P/E ratio and how/why it's fundamentally a verdict on a company's future growth prospects, not its "current health."
Best to move along.....
Forward P/E has to do with growth, and of course it's dependent on net income increasing. Here's a story for you:
The very first stock I invested in was a solar company that was recording record earnings, record revenues and was the biggest in the market. It had a P/E of around 6, and forward P/E of around 4. It recorded record earnings while I had shares, and then subsequently tanked. Why? Because the shorts and other investors much more sophisticated than I saw past those fundamentals, and knew that a supply glut was heading to the market, which would drive prices down and squeeze out companies. I sold my shares after losing 30% of their value, had I held on I would have lost 95%. Despite the fundamentals which looked great, the shorts were right, that company went on to lose alot of money, their margins today are at around 0, and they got caught up in a fraud in Italy. I learned my lesson.
Yes, P/E ratio can be a very basic measure of a company's current profitability and growth potential, but it doesn't tell the whole story. Like Amazon - big cash flow, good margins, great revenue, but net loss. Not because they're a bad company, but because they aggressively reinvest, and actively aim to keep the net profit they book low.
BTW, my Lenovo stock went up 6.32% last night in Hong Kong