Excerpts from the notes we’ve seen.
Mark Moskowitz, Barclays. One Vendor’s Woes Could Be Apple’s Gain. For Apple, we think the focus will be on whether the iPhone franchise exhibits a major lift from the Samsung Galaxy Note debacle. If Apple is able to take advantage of Samsung’s missteps by virtue of market share gains and thus sidestep the mixed demand trends in global smartphones, then our cautious near-term stance on iPhone sales velocity could be at risk. Overweight. $114. (10/25)
Chuck Jones, Sand Hill Insights. Channel inventory build could be substantial. In the June quarter Apple decreased its iPhone inventory by 4.1 million units to about 17 million which was the largest decrease by over 3.5 million iPhones vs. any previous quarter. The iPhone 7 became available in 29 countries at its launch on September 16, nine days before the end of the quarter, which were substantially more countries than normal. It could then be bought in 30 more countries starting on October 7, which would have had to have some iPhones shipped before the end of the quarter of September 24. I have Apple building up its channel inventory by about 1 million units to 18 million, which should add about $650 million in revenue.
Rod Hall, JP Morgan: Adding units back for Note 7 share gains. Remain cautious on demand trends. We are expecting Apple to guide to 4% below consensus revenue for FQ1 as smartphone demand remains weak globally, with the weakness more pronounced in the $400+ category. We are, however, increasing our iPhone estimates for the December quarter by 3m to account for possible help from the discontinuation of the Samsung GN7. We are increasing Mac estimates for FQ1 as Mac refresh on Oct 27 could also help. Overall, our FQ1 revenue remains 4% below Bloomberg consensus… We believe challenging short term fundamentals are likely to drive the stock lower until expectations are reset to the current macro reality. Overweight. $107. (10/24)
Steve Milunovich, UBS: Apple in China. We hosted our colleague Jinjin Wang, Asia Telecom analyst, to offer her views of the China handset market and Apple’s position. Her views on Apple were cautious, indicating that domestic handsets are likely to continue to gain share and that iPhone 7 demand is below 6s according to distributors. We followed up with her to clarify. She said that (1) there have been supply constraints for the iPhone 7 in China, (2) her sense still is that demand will be softer because consumers don’t perceive as much value to Apple with domestic brands catching up, and (3) total Apple sales (6s and 7) could be relatively stable. Our estimate of 8% iPhone unit growth in F17 assumes China is slightly down. Buy. $127. (10/24)
Maynard Um, Wells Fargo: High Expectations into What Should Be a Good Quarter. We expect a good quarter with rev/EPS of $47.6B/$1.71, above the Street’s $47.0B/$1.65 driven by an accelerated iPhone country launch but limited somewhat by manufacturing constraints as well as strong guidance driven by the extra week in the quarter… We expect December gross margin guide to be up sequentially given the greater mix of iPhone in the quarter though greater promotional activity could offset and expect management to talk about iPhone demand outstripping supply. Our sense is that sentiment is as positive as it had been into the iPhone 6 cycle and thus believe Apple has a low margin of error in delivering results and guidance. Market Weight. Valuation Range: $105.00 to $120.00. (10/24)
Neil Cybart, Above Avalon: Previewing Apple’s 4Q16 Earnings. Apple’s 4Q16 earnings release is set within a dynamic environment. Expectations are on the rise. Wall Street is now calling for the iPhone to return to sales growth in 2017. In addition, there are very early signs of light at the end of the iPad sales tunnel. However, given severe iPhone and Apple Watch supply shortages following last month’s product launches, 4Q16 numbers won’t provide the clearest answers for judging Apple’s performance improvement. Instead, a greater than usual amount of attention will be focused on management’s earnings conference call and 1Q17 revenue guidance. (10/24)
Gene Munster, Piper Jaffray: Net Effect From Extra Week and Samsung Patent Payment Comp Is a 1% Positive. Of the ~50 analysts that cover Apple, we believe slightly more than half have already factored in the benefit of the extra week in this December quarter. We believe the extra quarter will add about $3 billion in revenue, much less than the weekly average of $5.5 billion given sales drop after the Christmas holiday. We note 10 analysts have raised their Dec-16 estimates in the past 30 days. Therefore, Street numbers for Dec-16 would increase by about $1.5 billion if all analysts would factor in the extra week. On the negative side, the Dec-16 quarter is comping against a $548 million Samsung patent payment paid to Apple in Dec-15, which we believe most analysts have not factored into their Dec-16 estimate. For revenue, we believe the net effect of these two events is a $1 billion positive impact to revenue for the Dec-16 ,or just over a 1% impact. For earnings, we believe the net effect is neutral. Overweight. $151. (10/23)
Amit Daryanani, RBC: All Systems GO But Where Is the Buyside? AAPL remains a core long holding for investors through year-end and into CY17 reflecting attractive valuation (~8.5x FCF) and potential for them to beat/raise numbers near-term. We think AAPL should be able to comfortably provide upside to consensus for Sept/Dec- qtrs, but suspect buyside is looking for this already… We think fundamentals continue to support an upside bias to the stock driven by iPhone unit upside, though the magnitude of this could be below where the extreme bull case expectations currently stand. Outperform. $125. (10/23)
Timothy Arcuri, Cowan: Earnings preview. The iPhone 7 is proving an effective “bridge” to the iPhone 10 super-cycle in ’17, where a powder keg of a dramatically aging installed base lurks just under the surface such that C17 Street revs/EPS are 10%+ too low. Outperform. Raised price target to $135 (“which even still seems too low”) from $125. (10/21)
Neil Cybart, Above Avalon: Apple 4Q16 Earnings Preview (Part 3): Management’s 4Q16 guidance that was released this past July implied 4Q16 iPhone unit sales of 41M to 45M. I’m a bit skeptical we will see results too far away from this range. Apple provided that guidance at the end of July with visibility into early August. In addition, management would have a good estimate as to the number of new iPhones available at launch and capable of being shipped before the end of the quarter. While there is potential for some changes due to better or worse production yields, I don’t think it will be significant. Given tight iPhone 7 Plus supply, the risk to 4Q16 iPhone sales is to the downside. (10/20)
Tavis McCourt, Raymond James: A Return to Y/Y Growth Is Probable. We raised our revenue and EPS estimates for Apple’s December quarter (1Q17) in a note dated September 16th, citing early evidence of better than expected demand for iPhones… Our overall view is that Apple is likely in the early innings of a 5-8 quarter transition to posting y/y growth, which should lead to higher valuations over the next year. Outperform. (10/19)
Jan Dawson, Techpinions: Earnings Preview. With its car efforts in the news again this week, it’s inevitable Apple will be asked about Project Titan on its earnings call and at least as inevitable executives will refuse to answer questions about it. Near term, however, all the attention will be on pre-sales of the new iPhones and for indications these may provide a potential rebound in iPhone sales and, therefore, Apple’s overall revenues. I think Apple’s revenues will rebound either at the tail end of this year or early next year and we’ll have official guidance for calendar Q4 2016 from this quarter’s earnings. (10/18)
Sherri Scribner, Deutsche Bank: Expectations have moved higher. Given increased build plans at Asian suppliers and a boost from short-lived U.S. carrier promotions, we are raising our iPhone estimates to 46M in C3Q and 75M in C4Q. While we expect some upside to results versus management’s original guidance, we believe investor expectations have already moved higher and are reflecting a beat and potential raise. We expect positive iPhone comments to continue in the next 1-2 months, which should support the shares into year-end. However, we remain market weight on Apple longer term given slowing smartphone growth and elongating refresh cycles in mature markets. Hold. $108. (10/17)
Aaaron Rakers, Stifel: Increase iPhone Ship Estimate to ~47.0M. We continue to believe it is important to appreciate the velocity / breadth of Apple’s iPhone 7 cycle relative to past cycles. Apple’s iPhone 7 pre-orders launched on September 9th with initial deliveries commencing on September 16th, or equating to 9 days of recognized shipments in F4Q16 versus 2 days of iPhone 6s shipments in F4Q15. Apple’s initial iPhone 7 launch covers 28 countries with 30 additional countries rolling out the following week. This compares to the 10 countries in the initial iPhone 6 launch (2014) with 12 additional countries the following week; iPhone 6s cycle included 12 countries in the initial launch (2015) and 40 additional countries two weeks later. For the December quarter we would continue to remind investors of the extra week of shipments. Buy. Raised price target to $130 from $120. (10/17)
Katy Huberty, Morgan Stanley: Raising Estimates on Stronger iPhone Demand. With a better display, better camera, longer battery life, and water resistance, iPhone 7 features are compelling enough to continue to drive record number of switchers and decent number of refreshers from a 600M+ installed base. Dual camera and to a lesser extent Samsung’s (covered by Shawn Kim) Note 7 issues are driving higher 7 Plus mix, helping ASPs and margins. A 10 point increase in 7 Plus mix could increase iPhone ASP by $20 and GM by 15bps, and add 1-2 cent to Apple earnings. Carrier promotions in certain regions also boosted initial demand. But Apple’s revenue recognition is limited by its supply, and we still see constraints for certain models today. As a result, we raise iPhone shipment estimates in Sep and Dec Qs. Overweight. $124. (10/14)
Toni Sacconaghi, Bernstein: It is all about Q1 guidance & implied iPhone units… The key—and nearly singular—question for investors is FQ1 17 guidance, and what that signals about strength of the iPhone 7 cycle. While early data points on iPhone 7 and Samsung’s discontinuation of Note 7 are incrementally positive, it is too soon to have conviction on the strength of the iPhone 7 cycle. Many investors believe that because Apple will enjoy an extra week in its December quarter, consensus estimates are a “slam dunk.” Importantly, we caution that while an extra week will help Apple on a YoY basis, it might be more than fully offset by two factors: (1) seven fewer, high volume launch quarter sales days in the December quarter this year vs. last; and (2) a lower expected channel build (0.5M vs. 3.3M) relative to last year. Outperform. Raised price target to $135 from $125. (10/13; reissued 10/25)
Kulbiner Garcha, Credit Suisse: Evidence of iPhone strength. We see our trip to Asia, recent news flow, Dialog’s preannouncement, and the Galaxy Note 7 issues all giving us further confidence that this iPhone 7 cycle may prove stronger than expected. Given high retention rates, a superior ecosystem, and multi product compute advantage, we believe such elevated levels of earnings and FCF of ~$67bn should be sustainable long term. Additionally, with the high margin Services business potentially making up ~30% of gross profit long term, we reiterate our Outperform and TP of $150. (10/12)
Stephen Milunovich, UBS: It’s all about expectations over the next year. We often are asked two related questions: (1) how to time the iPhone cycle, and (2) when the stock will discount the iPhone 8 cycle, which is expected to drive significant upgrades. We find the stock reacts to results relative to expectations, not surprising and confirming that investing is an expectations-based endeavour. Rarely has the stock outperformed without revenue and EPS beating estimates. A forecast period of the next 12 months seems to best capture stock moves. Consequently, we expect the stock could begin discounting the iPhone 8 cycle after F1Q results are reported in January. Buy. $127. (10/12)
Simona Jankowski, Goldman Sachs: Expect a beat and raise quarter on iPhone 7 cycle. We expect a solid beat-and-raise quarter on strength in the iPhone. Demand for the iPhone 7 appears to be tracking ahead of expectations, aided by (1) the one week earlier than expected launch, (2) stronger than expected carrier promotions in the US, China and other markets, and (3) issues with Samsung’s Note 7. Our weekly delivery tracker shows iPhone 7 supply is still not catching up to demand. Our latest survey of 1,000 US consumers, conducted last week, shows the iPhone 7 as the top consumer electronics product for the holidays in terms of purchase intentions. Also, 26% of respondents plan to buy an iPhone in the next three months, well above the 19% response in September 2015, and the highest level in a year. Buy. $124. (10/12)
Mark Moskowitz, Barclays: Smoke Signals: We Remove Top Pick Designation and Trim PT to $114. We are removing the Top Pick designation on Apple as part of our IT Hardware coverage. Apple held this designation since our coverage launch on October 15, 2015. While data points can be ever-changing, we elect to trim estimates and lower our PT to $114 to signal possible near-term tumult after the stock’s recent run. Our research indicates a recovery in global smartphone growth could be pushed out. Plus, conversations with industry participants suggest iPhone sales trends could be at risk of petering out in coming months, similar to last year’s post-IP6S launch fall-out. Overweight. Cut price target to $114 from $115. (9/29)
That should do it.