For Apple, this week is pure gravy

With untold numbers of late-arrival AirPods on top.

Last year at this time, Apple had already closed the books on its all-important Christmas quarter. This year the company gets to add an extra seven days of sales. Reader Robert Paul Leitao of the Braeburn Group explains:

Ordinarily Apple’s fiscal quarters are exactly 13 weeks in length and always end on a Saturday. Because 365 days are not wholly divisible by 7, there’s a reminder day each year (2 days in a leap year). To realign the company’s fiscal quarters with calendar quarters, every 5 or 6 years (depending on the number of leap days in the multi-year period) Apple adds a 14th week to its first fiscal quarter. The last time this occurred was FQ1 2012 (the December-ending calendar quarter of 2011).

Wells Fargo analyst Maynard Um estimates that Apple could sell an extra 3 million iPhones in this, the 14th week of fiscal Q1 sales. RBC’s Amit Daryanani puts the number at 5 to 6 million. Neither analyst factored in the untold numbers of AirPod sales that will flow to Apple’s books this quarter

In fact, the late arrival of those AirPods—scheduled for late October, not available until the week before Christmas, nearly two months late—puts an odd twist on the first two quarters of Apple’s fiscal 2017.  The earbuds would have made dandy stocking stuffers if they had been available in quantity last week. Apple probably left a big pile holiday money on the table—some of which it will get back this week, thanks to the anomaly in its fiscal calendar.

Here’s the twist: Whatever revenue Apple had to forgo in fiscal Q1 (already headed for an all-time record), it can expect to get back in Q2, when AirPods should be plentiful.

Good listening: AirPods and the Battle for Our Ears. Neil Cybart argues in Above Avalon podcast Episode 85 that Apple may have just captured first-mover advantage. Having spent nearly week showing off  my AirPods to friends and family, I’m inclined to agree.

See also: Analyst discovers extra week in Apple’s December quarter

7 Comments

  1. Tom Wyrick said:

    The Above Avalon podcast on AirPods is well worth listening to. Neil Cybart is consistently the best analyst of Apple the company and Apple products — as opppsed to AAPL the stock.

    Neil seems confident that AirPods will be a big product for multiple reasons, and I agree with him. They are comfortable and easy to use, and create new potential for the Siri interface.

    Neil tossed around ballpark sales estimates in the neighborhood of 1 million units per month (over time). At retail, that would be about $2 billion in AirPod sales annually. My wild guess is considerably higher, at least twice as many units, especially after replacements are considered.

    After one or two version updates (fine-tuning), assume that 1% of the installed base of 700 million iPhone owners buy a pair of AirPods every month. That would be 7 million units per month or 84 million units annually! That’s a huge number of units, but the assumption of 1% per month is only optimistic, not ridiculous. That target could be achieved if half of iPhone owners purchase two pairs of AirPods apiece over the coming 8 years. If Apple maintains a technology lead in the ear, that is an outside possibility.

    Those who say Jony Ive’s design team has been slumbering should try out the AirPods.

    3
    December 27, 2016
    • Robert Paul Leitao said:

      Tom:

      I’m expecting in the range of $1 billion in revenue from AirPod sales in the March quarter inclusive of fulfillment of backorders from the December period.

      Here’s an interesting comparison: In the last fiscal year in which Apple delineated iPod unit sales (FY2014), the company reported 14.377 million units sold and revenue of $2.286 billion or, on average, $159 per unit sold. Apple may not reach supply equilibrium on AirPods until sometime in February and it’s possible unit sales and revenue in FY2017 could come close to the iPod line’s FY2014 performance.

      AirPod sales revenue will be wholly accretive to reported revenue in all quarters of FY2017 with a big year-over-year revenue gain for Apple’s latest iPhone accessory in FQ1 2018.

      AirPods are the perfect complement for the iPhone 7 and will be well positioned in the market when the successor iPhone handsets are released next fall.

      0
      December 28, 2016
  2. Robert Paul Leitao said:

    Apple’s 14th week in the December quarter represents more than an “additional week” of sales. It includes the immediate post-Christmas shopping days which are heavy with gift card purchases.

    Although the March quarter, which begins on January 1st, won’t have the benefit this year of the post-Christmas shopping week, it will have the benefit of very strong AirPod demand at the start of the quarter as well as continuing strong demand for the iPhone 7 handsets. Last year Apple significantly increased iPhone channel supply prior to exiting the December which caused reported unit sales in the March quarter to be below sell-through by close to one-half million units. In total, there was a 1.5 million unit swing in iPhone channel supply year-over-year in the March quarter last year which contributed to the 16% decline in reported unit sales.

    With strong demand for iPhone 7 handsets as the March quarter begins, the benefit of wholly accretive AirPod revenue and a soft prior-year comparison for the period, Apple may deliver record revenue for the combined 6-month period (December and March quarters) eclipsing the record set in the first six months of FY2015.

    More important than the number of iPhone units sold in the 6-month period is Apple’s ability to increase revenue per customer with a compelling portfolio of devices, accessories and services including the new AirPods. In other words, the company is widening its economic moat by creating disincentives for customers to exit Apple’s paradigm of fully integrated devices, accessories, services, apps and content. This may become more obvious to analysts as we approach next year’s much-anticipated “super cycle” for iPhone sales.

    0
    December 28, 2016

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