Apple 2.0 blogger Philip Elmer-DeWitt always has his ear tuned to Wall Street, and today he highlights that unemployed mortgage broker analyst Turley Muller says Wall Street deeply underestimates how much of an effect the iPhone has on Apple's bottom line.
On his blog Financial Alchemist, Muller estimates that Apple's gross margins on the iPhone are 58.4 percent -- so lucrative, in fact, that the company was able to swallow price cuts on the rest of its product line without any significant impact on overall gross margins, he says.
Before you get up in arms asking who this guy is, Elmer-DeWitt defends Muller's analysis based on his history:
Over the past four quarters, he has missed reported EPS by 4 cents, 2 cents, 1 cent and 0 cents, respectively. (In those same four quarters, the Street underestimated Apple’s EPS by 15 cents, 40 cents, 24 cents and 18 cents.)
In fact, in our latest Analyzing the Analysts report, Muller’s predictions were closer to actual results than any other analysts’ in four categories out of seven — including the tricky non-GAAP revenues non-GAAP earnings.
Muller writes that it's impressive that Apple's conservative gross margin guidance for the fourth fiscal quarter is 34 percent, despite several factors pushing margins down.
- [Apple] transitioned entire notebook line.
- Cut prices across entire notebook line and/or added increased performance.
- Back to School promotion (Mac discounts plus free 8GB iPod touch).
- Revenue mix shifted towards lower margin Macs from weak business spending affecting the Mac Pro line.
- Component prices increased, coupled with higher commodity and energy prices.
- Offsetting all this are the iPhone’s steadily rising gross margins, due to a complex mix of current and deferred revenue from several generations of iPhones — each with their own individual margins.
Then Muller illustrates:
In other words: despite a $99 price point on the 8GB iPhone, Apple's still making nearly 60 percent margins on all iPhone models.
Do you buy these figures? (Keep in mind, we're talking gross, not net, margins.)