Beware December Quarter Guidance
by asymco-admin
The March quarter will also be diverging
Rumor has it that Apple will split the launch of the latest iPhone models across two quarters. The high-end iPhones will be announced as always, in September, but the base models will be released in the following quarter. I don't know if this is to be believed but there are other factors that might affect the next quarter that are out of the normal.
Pricing may change. Memory costs have increased so much that Apple has had to increase prices across all products apart from the iPhone. The iPhone may not be spared any longer and the normal pricing cadence may be disrupted. This cadence has been illustrated over the years as the "stairway to heaven" graph.
There might be a new form factor. Rumors are abundant about a folding iPhone being launched this fall. If true, it will probably be priced above the iPhone Pro Max given the size of the screen, battery and overall mechanical complexity. How well this product will do given the new form and new price is difficult to predict. The supply/demand balance may take some time to optimize.
Normally i don't use rumor information as it's easily corrupted, however in this case the confluence of multiple factors could cause a disturbance in the usual reliability of guidance. Here's why.
If there are new products or even a split launch, the company will not pre-announce this at earnings time. These changes in the portfolio could have a significant effect on growth relative to the previous year but the reason cannot be specified. This leaves a dilemma for providing guidance. If they provide accurate but historically divergent guidance they are tipping their hand on the mix/split/pricing. If they withhold guidance to protect the launch then they might be seen as signaling a miss.
Alternatively they might not provide any guidance since they don't know the exact impact of the new mix and pricing.
Either of these changes will undoubtedly be misinterpreted or falsely attributed to declining demand for the products.
It's also possible that the new CEO will change how it communicates guidance overall. This is not unprecedented as guidance changed a few times in the last twenty years:
- During Steve Jobs' time as CEO, guidance was "sandbagged" and results were far higher than predicted. (See graphs below)
- Guidance on earnings was withdrawn altogether during Covid and replaced with revenue growth range, margin and operating expenses guidance (leaving the EPS as a calculation requiring a guess of the buyback rate).
- Unit sales of products (and hence average selling prices) were also excluded from reporting as of 2018.
Overall, the next few quarters will be different and transitory. Products are changing, costs are changing and management is changing. However, the fundamentals are likely getting stronger. Competition will be weakened, products will be better positioned, new customers will be attracted. The reporting on this topic will be all over the place and if history is any guide, the negatives will overwhelm reason.
Don't be fooled.
5 comments
rbgayle ·
I'm wondering if splitting the launch of the new phones could be in response to increasing costs. They release the expensive models first and can raise prices that could easily be absorbed by these buyers (maybe raising even more than necessary so they can keep prices on other models from increasing as much).
By delaying the launch of the lower-end models, they gain several months more of producing phones that could be cheaper to make, instead of shifting to a new model at the start of its tech cycle. Might Apple even be able to keep the pricing of these low-end iPhone 17s little changed through the Christmas buying season, getting a lot of people buying in because of SiriAI before the prices on the low-end iPhone 18s rise in the first quarter? Essentially using the iPhone 17s as a Neo-like entry point for a few months and gaining market share?
Now that would be the sort of gift Cook would love to leave as a legacy. And giving Ternus a supercharged start to his new position. Yeah, in this brutal world, this is likely just my imagination. But if any company could pull off this draw to an inside straight, it would be Apple.
deemery ·
Undoubtedly, both a split launch and any guidance will be taken as negatively as possible, as harbingers of the Impending Apple Doom.
Just today, I saw an article talking about 'the hidden AI tax on Apple," as if this was something not widely discussed for at least the last 6 months.
Still, I'm inclined to think the integrated SoC approach Apple is doing with the M-series will substantially mitigate memory risks. For the direct access memory, Apple will NOT be competing with separate memory chip demand. But for persistent storage, I suspect Apple is still competing for products. Someone please correct me if I got this wrong
Sacto Joe ·
Robert and David, I think you both make really good points, as does Horace. I also think a "foldable iPad" that doubles as a smartphone (see what I did there?) will appeal to a substantial number of folks, so it is likely to be very quickly moved to back-order status - especially if some folks will be buying two and then selling one for a profit during that lag time.
Regarding Horace's caution flag, I think it's now likely that there will be yet another post-earnings selloff, after the big jump back to $333 today. But that said, if the foldable iPad comes out in time for the December holidays, since the numbers originally sold will be able to be compared to the backordered shipping dates, it will appear clearer by the day if Apple has yet another hit on its hands. I'd say that, if they ship early and if they're as good as I expect they will be, that will certainly blunt any negativity pretty quickly.
Ergo, watch that price drop, because it could be an excellent chance to get some cheap AAPL!
FredHS ·
I love the stairway to heaven chart.
Now, visualize a grey band, $200 to $600, the price range of used iPhones filling the gap to the Android ASP. Voila! No gap!
The Android ASP part of the chart lags, but we know Android ASPs are going up due to memory prices.
So... Regardless of rumors, timing, guidance, etc., Apple can raise iPhone prices.
AAPL ·
rbgayle, I am pretty sure the low end iPhone 17's (non-pro's) miss out on the most advanced Siri AI features - so, their sales may slow down on their own. But, I love your suggestion of Apple selling tons of iPhone Pro's and Ultra's from late September through end of year.