New Survey Suggests Improved Product Mix in Apple’s June Quarter

Source: Consumer Intelligence Research Partners

Source: Consumer Intelligence Research Partners

A new report from Consumer Intelligence Research Partners (CIRP) that compares the sales of Apple’s various product models may provide an indication of how well Apple (NASDAQ:AAPL) performed in the June quarter. According to a survey of 500 U.S. Apple customers conducted by CIRP, Apple’s latest iPhone and iPad models are continuing to outsell older models. The newest models also accounted for a higher share of sales than similar models from a year ago.

While Apple’s iPhone 5 only accounted for 52 percent of the company’s total iPhone sales in the second quarter of calendar 2013, the current flagship iPhone 5S accounted for 62 percent of total iPhone sales in this year’s June quarter. It should be noted that Apple’s fiscal third quarter is typically a slow quarter for iPhone sales, since many consumers are presumably holding off for the new model that is usually launched in September, during the company’s fiscal fourth quarter.

“Once again, Apple’s premium iPhone 5S sold well in the quarter,” said CIRP partner and co-founder Josh Lowitz. “It appears that in the US, Apple sells the 5S model at the expense of the iPhone 5C, which continues to sell much slower than the similarly-priced iPhone 4S in the same quarter last year. The entry-level ‘free’ or subsidized price point maintains its 16-18% of iPhone sales.”

Not surprisingly, Apple’s financial performance is closely tied to its iPhone sales. According to Apple’s last quarterly earnings report, a 57 percent share of its total net sales in the March quarter of this year came from its iPhone product line. While not as crucial as the iPhone, the iPad accounted for the second-largest share of Apple’s revenue in the March quarter with a 17 percent share of total net sales.

CIRP iPad models

Source: Consumer Intelligence Research Partners

Despite the longer life cycle associated with tablets, the flagship iPad Air also accounted for the majority of total iPad sales in the June quarter, with a 52 percent share, according to CIRP’s data. “Relative to earlier flagship iPad models, the new iPad Air captured much greater share,” said CIRP partner and co-founder Mike Levin. “The comparable flagship tablet last year, the iPad with Retina, accounted for less than a third of sales, while the iPad Air has over half. The small format iPads held their own at more than a third of sales, adding the higher-priced iPad Mini with Retina to the product mix. The $399 full size iPad with Retina seems to be stuck in the middle, at only 10% of sales.”

While Apple doesn’t reveal margins on its individual products, court filings in one of the company’s patent-infringement battles with rival Samsung (SSNLF.PK) revealed that the Cupertino, California-based company “earned gross margins of 49 to 58 percent on its U.S. iPhone sales between April 2010 and the end of March 2012,” Reuters reports. A teardown of the iPhone 5S performed by IHS suggests that Apple has had no trouble maintaining its impressive margins in its latest products, even as it has added new features like the Touch ID fingerprint scanner. According to IHS, the 16GB iPhone 5S has a bill of materials (BOM) of $191 and an estimated manufacturing cost of $8. Apple currently sells its unsubsidized entry-level iPhone 5S for $649 through its online store.

UBS analyst Steven Milunovich boosted his price target on Apple shares to $115 from $100 on Monday morning based on the better-than-expected product mix suggested by CIRP’s report. “For the June quarter, we have raised both our revenue and EPS by roughly 2.5% to $38.4bn and $1.25, respectively,” wrote Milunovich in a note obtained by Barron’s. “For the June quarter we are above consensus of $37.8b and $1.23 primarily due to our view that product mix improved. The CIRP Survey results discussed later indicate that the iPhone 5s and iPad Air continue to dominate their respective categories.”

Apple’s fiscal third-quarter guidance estimated revenue between $36 billion and $38 billion and gross margin between 37 percent and 38 percent. Apple will report its earnings results after the close of markets on Tuesday.

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