UBS: Solid quarter for Apple, but China is a drag

From a 21-page note to clients by analyst Steve Milunovich that landed in my inbox with a thump Tuesday:

Although we continue to forecast double-digit iPhone growth in F18, there are worries… China has gone from being the primary source of growth to a drag. The region was down 17% in F16 revenue, and Gartner data shows smartphone units were down 18%. Apple lost 10 points of market share in the country in F16. Our surveys and channel checks have indicated more tepid demand for the iPhone 7 in China than in the US. Our most recent UBS Evidence Lab Smartphone survey showed that interest in the iPhone 7 is below that of the 6s and a large increase in the number of Apple users with “no plan” of what phone to upgrade to. Also, UBS analyst Jinjin Wang’s channel checks have been soft.

We doubt China will grow YoY in Dec. Management noted on the last call that Dec performance in China will be “significantly better than Sep on a year-over-year basis.” Greater China was down 30% YoY in Sep, making that comment somewhat ambiguous. The region was up 10% in Dec 2016 in unit terms, potentially creating a difficult compare. We now estimate China iPhone units will be down 7% this year, which implies the rest of world must grow 8% to reach our 4% iPhone growth goal.

Rating: Buy. Price target: $127.

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  1. Keith Hope said:

    You saw the note on Tuesday. What date for initial release to clients?

    January 24, 2017
  2. Gregg Thurman said:

    Refer my post under article titled Apple: Stifel cuts iPhone sales estimate. Again.

    Essentially that post says smart people ignore the noise. Chief among the noise makers are “analysts”.

    January 24, 2017
  3. Robert Paul Leitao said:

    Suggesting revenue in Greater China, Apple’s 3rd largest revenue region, will be down YOY isn’t any kind of revelation. It’s expected ahead of a much-anticipated new iPhone form this fall. Apple’s Greater China revenue was down just over 17% last fiscal year but that followed outsized revenue growth in the region of nearly 85% in the prior year. Over a two-year period (FY2014 – FY2016) revenue rose in the region by over 52%.

    It’s expected Apple’s revenue growth in the region will be negative again this fiscal year. Next fiscal year will be a much different story as a new iPhone series debuts with a conspicuously different enclosure design.

    I would expect a Wall Street analyst to look beyond the near-term or at least place near-expectations in the context of a multi-year forecast of growth.

    January 25, 2017

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