Apple Inc. (AAPL) Q3 Focus: GM, iPhone, iPad, China

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Stifel has maintained a “Buy” rating on Apple Inc. (NASDAQ:AAPL) stock with a price target of $600 in its research report issued on July 17. According to the report around 25.5 million iPhones are estimated to be sold at ASP of around $600 ($/unit), reflecting the higher iPhone 4/4S mix.

Apple Inc. (AAPL) Q3 Focus: GM, iPhone, iPad, China

Segment wise estimates

Stifel expects 21.1 million iPads to be sold, in the coming quarter, including 14.6 iPad Mini’s. Analysts are upbeat regarding the competitive position of Apple Inc. (NASDAQ:AAPL) and consider education to be one of the long term positive drivers for Apple’s ecosystem. Total Macs are estimated at 3.5 million, a decline of 12 percent year over year.

In the PC segment, report estimates shipment of approximately 1.2 million for the June quarter, a decline from 1.3 million in the March quarter. Intangible asset, iTunes of Apple contributes only 5 percent of Apple’s trailing 12-month revenue but is expected to grow further in the future. iTunes Radio will be started in the United States in iOS, Macs iTunes for PC, and built-in with Apple TV.

Samsung who supplies A6 processors used in iPhone has decreased its production in the Austin facility. Additionally, production of A5 processor used in iPhone 4/4S has been stable. Stifel is expecting that Samsung will gear up production of A7, which will probably be used in the iPhone to be launched around later in F4Q13.

Apple net ownership among funds

Stifel notes that Apple’s net share ownership at top 100 institutional funds came down by approximately 38.2 million shares over the past year. Ownership at top 10 largest mutual funds is ~1.4 percent of cumulative assets under management.

Share repurchase

Apple Inc. (NASDAQ:AAPL) did not repurchase shares in the March quarter compared to $1.95 billion in the first quarter of 2013. However, Apple has become more active in repo commitment and share price performance (-19 percent YTD vs. S&P 500 +18 percent), which reflects that the “company became more active during in repurchases.” The iPhone maker is looking forward to spend ~$60 billion cumulative share repo over the next 32-months.

Apple’s Gross Margin

Stifel is estimating gross margin of 36.8 percent compared to the guidance of the company in the range of 36-37 percent in the June quarter. In the previous quarter and the corresponding quarter of the previous year, the gross margins were 37.5 percent and 42.8 percent respectively.

 On considering the historical margin trends, Stifel came across the fact that Apple Inc. (NASDAQ:AAPL) has historically lowered its guidance for gross margin.

Apple in China

Stifel is considering China as a major avenue of growth for Apple Inc. (NASDAQ:AAPL). However, eyes will be on China mobile, which has captured 60 percent of China’s total incremental 3G subscriber growth in 2013, and it still remains an untapped opportunity for Apple Inc. (NASDAQ:AAPL) with 735 million mobile subscribers.

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