If estimated warranty expense had remained constant in absolute dollar terms ($150M), GM would have been 38.4% vs 36.9%. If If estimated warranty expense had remained constant in as a percentage of revenue (1%), GM would have been 130bps higher at 38.2%.
via Financial Alchemist: Warranty Expense Crimps Apple’s Margins in 4Q10.
Muller spots the culprit in the margin drop. He notes that this is money set aside and may have been in anticipation of returns of the iPhone 4 due to antennagate. Note how in 3Q cost of claims was 155 and accruals were 157, about a 1:1 ratio whereas in 4Q costs were 286 and accruals were 457 about 1:1.6.
It’s possible that if the costs this quarter do not materialize then we could see a margin upside surprise.
(Contrast this insight with today’s large scale sell-off in shares due to mass media repetition of earnings guidance from the conference call as shocking “news.” See also evidence of unlawful trading behavior here.)
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