Gross margin
What it cost Apple last quarter to smooth China's ruffled feathers
May 2, 2013: 12:03 PM ETIn one day, Apple's profit margin went from the high end of its range to the low end.
FORTUNE -- After Apple's (AAPL) quarterly report last week nearly every analyst we heard from pointed out that the company's 37.5% gross margin -- the measure of how efficiently a company turns sales into profits -- was at very bottom of its 37.5%-to-38.5% forecast range.
The analysts offered a variety explanations, but most attributed the reduced margins to increased competition from Samsung and other manufacturers of Android smartphones and tablets.
But there's a simpler answer: China.
I don't know who hit on this theory first, because Wall Street analysts never credit their competitors' scoops.
- Asymco's Horace Dediu had it in a post called Margin Call 2 that was time-stamped Thursday, April 25 at 2:38 a.m.
- Wells Fargo's Maynard Um offered the same explanation in a note to clients issued later that morning.
- Morgan Stanley's Katy Huberty wrote about it on Tuesday April 30, five days later.
The theory is this: On the last day of the quarter Tim Cook, to appease government-owned media outlets that for two weeks had been attacking Apple on a daily basis, issued an apology to his Chinese customers and changed Apple's warranty and return policies -- among other things, extending the warranties on any iPhone brought in for repair in China for a full year.
At the same time, according to the company's SEC Form 10-Q, Apple booked $414 million in so-called warranty accruals to account for the impact of changes to certain unnamed "service policies and other estimated warranty costs." That $414 million came directly out of last quarter's iPhone revenue and reduced the company's overall gross margin by nearly 1 percentage point.
Morgan Stanley's Huberty estimates that if it weren't for China's media campaign and Cook's response, Apple would have reported a gross margin of approximately 38.4% -- just shy of the top of its guidance range.
How the market would have reacted the next day to the higher margins, we will never know.
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What a sell-side Apple analyst thinks the buy side is thinking
The expectations of institutions that sell and those that buy are two different things.
FORTUNE -- In a note to clients issued Monday afternoon, 24 hours before Apple (AAPL) is scheduled to release its earnings for the March quarter, Piper Jaffray's Gene Munster talked about something we don't hear much about: The so-called buy side.
Buy side is Wall Street jargon for those investing institutions such as mutual funds, pension funds and insurance MORE
Philip Elmer-DeWitt - Apr 22, 2013 7:17 PM ETPosted in: Apple, Buy side, Gene Munster, GM, Gross margin, iPhone, Piper Jaffray, Quarterly earnings, Sell side -
Will Apple bounce or sink next week? Its GM% may be the key
The focus next Tuesday will be on how efficiently Apple turned revenues into earnings.
FORTUNE -- Apple's (AAPL) shares have been getting slammed as Wall Street frets about its March quarter earnings report, due out next Tuesday.
Whether the stock bounces from the 16-month low it hit Wednesday or sinks even lower may depend less on iPhone or iPad sales than on its guidance for the June quarter (more on that later) MORE
Philip Elmer-DeWitt - Apr 18, 2013 8:23 AM ET -
A long-time Apple bull tries to lower investors' expectations
Piper Jaffray's Gene Munster says growth may not return until the back half of 2013
FORTUNE -- In February, Gene Munster predicted that Apple (AAPL) would get a boost this quarter from product announcements in March or April.
With March almost over and the quarter ending on Saturday, Piper Jaffray's senior Apple analyst issued a note to clients Tuesday warning that the company will have to get through a dry patch before MORE
Philip Elmer-DeWitt - Mar 26, 2013 6:43 AM ET -
Apple's declining profitability: Structural or seasonal?
Morgan Stanley finds evidence that Apple's margins will improve before the end of 2013
FORTUNE -- Apple's (AAPL) quarterly gross margin -- the measure of how efficiently a company turns sales into profits -- peaked in March 2012 at an astonishing 47.4%, along with its quarterly stock performance (up 29%).
But what goes up must come down, and when Apple warned Wall Street that its margins were likely to fall -- to MORE
Philip Elmer-DeWitt - Feb 4, 2013 6:48 AM ET -
Apple's extra week and other anomalies in last week's report
Stuff that went right over most analysts' -- and nearly every reporter's -- head
FORTUNE -- As predicted, the headlines reporting Apple's (AAPL) quarterly earnings last week -- and the market's immediate and violent negative reaction -- failed to take into account that Q1 2013 had one less week Q1 2012. Even Tim Cook did lousy job explaining it.
It fell to the Braeburn Group's Robert Paul Leitao, an independent investor who MORE
Philip Elmer-DeWitt - Jan 28, 2013 3:33 AM ETPosted in: Apple, Cash position, Deferred taxes, Extra week, Gross margin, P/E ratio, Performance, Stock -
Apple burned by analysts' overheated expectations
Ranking the best and worst Apple analysts for fiscal Q1 2013
FORTUNE (Koh Ngai, Thailand) -- As evidenced by Apple's (AAPL) sickening $55.5 (10.8%) drop in after-hour trading Wednesday, the analysts who cover the company -- both on and off Wall Street -- aren't doing it any favors.
The company didn't have a bad quarter. In fact, it posted its best quarter ever with earnings per share of $13.81 on sales of MORE
Philip Elmer-DeWitt - Jan 23, 2013 8:16 PM ET -
Apple analysis for idiots: An Andy Zaky tutorial
It's a piece of cake, he says. Just take the company's revenue guidance and add 15%
In a 5,000-word essay posted in Bullish Cross Monday, Andy Zaky laid out his method for estimating Apple's (AAPL) quarterly revenue and earnings numbers. He starts with three assumptions:
That most Wall Street analysts and financial writers are completely clueless and couldn't analyze their way out of a paper bag
Philip Elmer-DeWitt - Dec 12, 2011 4:18 PM ET
That the earnings guidance numbers Apple issues each quarter MOREPosted in: Andy Zaky, Apple, Bullish Cross, Gross margin, iPad, iPhone, iPod, Mobile, PCs, Quarterly earnings, Tablets, Wall Street -
Apple poised to report another record-breaking quarter
Setting the stage for a monstrous Christmas selling season
It's been a busy fortnight for Apple (AAPL), between the Let's Talk iPhone special event, the death of Steve Jobs, the launch of the iPhone 4S and Sunday's star-studded memorial service. Next week we'll get the worldwide laydown of Walter Isaacson's Steve Jobs, the only biography written with Jobs' cooperation, launching another round of media overkill (starting with next Sunday's 60 Minutes).
But today is about MORE
Philip Elmer-DeWitt - Oct 18, 2011 8:35 AM ETPosted in: Apple, Earnings Smackdown, Gross margin, iPad, iPhone, iPod, Mac, Mobile, PCs, Quarterly earnings, Steve Jobs, Tablets, Walter Isaacson -
Apple blows past estimates. Sales up 82%. Profits up 125%.
Sold a record 20.34 million iPhones, 9.25 million iPads and 3.95 million Macs
Apple's (AAPL) third fiscal quarter was bigger than the most optimistic estimates. Even without a new iPhone to drive sales, revenues, earnings and profits were bigger than the biggest Christmas quarter.
Apple also announced that OS X Lion is coming tomorrow (Wednesday).
The iPhone and iPad numbers were huge surprises. Sales of the iPod, as expected, continued to fall. Only MORE
Philip Elmer-DeWitt - Jul 19, 2011 4:57 PM ETPosted in: Apple, Apple Store, Gross margin, iPad, iPhone, iPod, iPod touch, Peter Oppenheimer, Quarterly earnings, Steve Jobs, Tim Cook
