From a note to clients by analyst Amit Daryanani that landed on my desktop Tuesday:
ALL YOU NEED TO KNOW:
- Off balance sheet purchase commitments were up 50% y/y vs. Dec-19. The increase points to strong iPhone expectations, consistent with our thesis that iPhone demand will be stronger for longer.
- Operating margins were up in each of the 3 major regions (Americas, China, and Europe). The increase in the Americas was particularly notable at +240bps y/y. China also recovered well after lack of iPhone sales drove unusually low margins in the Sept-qtr.
- Warranty accruals were up y/y and had a ~110bps negative impact on margins on a q/q basis. This we think makes the gross-margin print at 39.8% all the more impressive for Dec-qtr. We do note that there was a 80bps positive impact in the Sept-qtr.
- AAPL returned $30.5B to shareholders in the Dec-qtr, above the $22B returned in the Sept-qtr. Despite the high capital returns, Apple’s net cash position actually increased to $84B vs. $79B at the end of the Sept-qtr.
- We estimate FX was an ~20bps tailwind to gross margins.
Net/net: Purchase commitments remain elevated, pointing to continued strength in iPhone demand. Capital returns remain very large and this should not change given the sizable net cash position.
Maintains Outperform rating and $163 target.
My take: Watch those pesky warranty accruals.