Fortune reporter Philip Elmer-Dewitt compiles sell-side and independent analysts forecasts on Apple. He has gathered 60 projections that have a gross margin average of 38.6% and a mean of 38.5%.
Apple guided gross margins to be between 37.5% and 38.5% for the March quarter. This compares to a peak of 47.4% in the March 2012 quarter and 38.6% in the December 2012 quarter.
CJ Takeaway: Every 1% or 100 basis points of gross margin equals $425 million in gross profit based on my revenue estimate of $42.5 billion. This translates to $0.33 in EPS off my projection of $9.90. My 37.8% estimate is at the low end of guidance and the analysts estimates mainly due to the decline in iPhone sales from the December to March quarter.
Source: Fortune magazine Philip Elmer-Dewitt
While it is never easy to project the actual gross margin in any quarter there are a number of items that add complexity to this quarter’s estimate.
- 80% of products shipped in the December quarter were new which means they were at the highest point of their cost to manufacturer.
- There was probably a lot of air freight in the December quarter which would have added to the cost of a product. Air freight should be lower in the March quarter.
- Historically gross margins increase from the December to March quarter.
- The prior three years have seen iPhone sales stay relatively flat quarter over quarter from the December to the March quarter. With iPhones probably having the highest gross margins of any of Apple’s hardware products this has helped gross margins.
- However, iPhones are projected to have a significant decline from December’s 47.8 million to around 37 million (CJ estimate).
- Therefore I am modeling gross margins to decline from 38.6% in the December quarter to 37.8% in the March quarter.
Source: Fortune magazine Philip Elmer-Dewitt
Disclosure: My family and I own Apple shares
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