Digging Into Apple's 10K

In a new report, J.P.Morgan analyst Rod Hall took a close look at Apple Inc. AAPL’s new 10-K filing. Here’s a list of nine noteworthy things he found.

1. Warranty accruals declined from $1.071 billion to $893 million quarter-over-quarter (Q/Q), a trend that Hall believes should boost gross margins.
2. Apple lowered the estimated selling price for software upgrade rights and non-software services on iOS devices and Macs by $5-$10. Hall believes that this deferred revenue adjustment should boost gross margins in 2016.
3. Apple’s purchase commitments rose 20 percent year-over-year (Y/Y) to $29.5 billion.
4. J.P.Morgan estimates that forex derivatives boosted Apple’s gross margin by 0.7 percent in Q3.
5. Apple hired 17,400 full-time employees in fiscal 2015, 5,000 more than they hired in 2014. The world’s largest public company now employees 110,000 people.
6. Apple revealed a surprisingly aggressive capex budged for 2016 of $15 billion, a 32 percent Y/Y increase.
7. Apple revealed that Mac sales increased in all global regions in fiscal 2015, while iPhone sales grew everywhere but Japan.
8. Apple will no longer be disclosing individual revenue numbers for iTunes Store, App Store, Mac App Store, iBooks Store and Apple Music and instead will be lumping them together under the Internet Services category.
9. Apple’s value-at-risk model indicates with 95 percent confidence a maximum one-day loss in fair value of $342 million, up from $240 million at the end of fiscal 2014.

Apple’s 10-K shed some light on the inner workings of the company, but Hall didn’t see anything that changed his bullish opinion of the stock. J.P.Morgan maintains its Overweight rating.

Disclosure: the author holds no position in the stocks mentioned.

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