Apple (NASDAQ:AAPL) is gearing up for a huge holiday quarter. Amid reports that Apple is reducing orders for the iPhone 5c is the fact that Apple is still manufacturing more iPhones than ever before. According to executives at Foxconn's parent company, the manufacturer is pumping out 500,000 iPhone 5s units every day, reducing the waiting time from two to three weeks to three to five days.
Additionally, Apple increased its order for the Retina iPad Mini, as demand for the device has already surpassed the first-generation iPad Mini. The biggest boost this holiday quarter could come from a reported deal with China Mobile (NYSE:CHL).
All indications are that Apple is going to have a record holiday quarter.
A bit of perspective
Last year, Apple sold a record 47.8 million iPhones in the holiday quarter. At the same time, the average sale price of an iPhone in the first quarter of fiscal 2013 was $641, down from $646 the year before. The company's overall gross margin fell 6.1 percentage points to 38.6%
At 500,000 units per day, Foxconn is producing iPhone 5s phones at a run-rate of 45 million units per quarter. With the slowdown in 5c production, it's safe to assume the 5s makes up the majority of iPhone sales, and last year the iPhone 5 accounted for an estimated 70%-75% of all iPhone sales. Data from the new iPhones' launch weekend verifies this trend. That's a 60 million iPhone quarter at the low end. Of course, supply bottlenecks will keep that number in check, but that's a safe assumption for estimating current demand.
To put that number in perspective, Samsung has targeted 126 million high-end smartphone sales for 2014. The company, which once expected to sell 100 million of its Galaxy S4 smartphones, has continually gained market share on the low end, but has recently struggled to grow high-end sales. Apple could outsell Samsung on the high end by more than 50% in 2014, based on recent results.
With iPhones as a larger part of the product mix, and the higher-margin iPhone 5c replacing the iPhone 5 in the product line, Apple can expect to see an increase in gross margin this quarter. Increased demand for the Retina iPad Mini could boost that number as well.
Higher price, higher demand
The Retina iPad Mini is priced $70 higher than last year's "low-margin" version. In its 10-Q from the first quarter of fiscal 2013, Apple noted that the "introduction of iPad mini with gross margin significantly below the company's average product margins" was partially to blame for the decline in gross margin.
Apple is seeing strong demand for the Retina iPad Mini, which sells at a higher margin than the previous generation. Apple continues to sell the older generation Mini with a moderate price drop of $30 over last year, but there's higher demand for the Retina iPad Mini. Meanwhile, Apple also continues to sell the iPad 2 at the same price, so average sales price and margin of the iPad product line ought to increase as well.
A Christmas surprise?
China Mobile is launching its 4G network on Dec. 18. Apple is reportedly in talks with the world's largest wireless carrier to launch versions of the iPhone 5c and 5s that support the new China Mobile network. China Mobile will benefit from new Chinese government 4G licenses, which have different standards than the international standards rivals China Unicom and China Telecom are using to build their 4G networks.
With 759 million China Mobile subscribers, 62% of the Chinese subscriber base, Apple's market could increase substantially if the report is accurate. Recent estimates show Apple has an 8% share of the Chinese smartphone market. A China Mobile deal could double that share, with the majority of subscribers in the country essentially locked out from the product until the reported Dec. 18 launch date.
Historically, the holiday quarter is Apple's (and many other consumer electronics companies') strongest quarter, as people buy each other (and themselves) high-tech presents. This year looks to be shaping up quite nicely for Apple, and I expect that to continue into 2014 as global sales of Apple products continue to increase, bolstered by a deal with China Mobile.
Fool freelancer Adam Levy owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.