Analyst: It’s iPhone X Whack-a-Mole

Apple December guidance, says RBC’s Amit Daryanani, may not even matter.

From a note to Royal Bank of Canada clients that landed in my inbox Sunday:

We think AAPL is positioned to print Sept-qtr results inline with street and guide Dec-qtr below expectations. Dec-qtr buyside expectations are ~75-80M iPhone units but overall revenues are expected >$80B (given higher ASP’s). What we think matters is AAPL’s commentary around supply constraints and path/timeline to alleviating them along with inherent steady state gross-margin expectations.

Simplistically, whatever AAPL guides for Dec-qtr is a reflection of their supply and not true end-demand, hence we see potential for Dec-qtr guide being below street but we see upside to march-qtr expectations as supply eventually catches up.

Net/Net: AAPL should outperform as data-points get positive & AAPL benefits from 1)ASP tailwinds from iPhone X and higher memory, 2) GM’s benefit from f/x, services and higher memory & 3) potential for AAPL to see rev/EPS growth not just for FY18 but also FY19.

Daryanani maintains his Outperform rating and $180 price target. 

My take: Sounds about right. Whatever iPhone X orders get pushed back in December will pop back up by March.

7 Comments

  1. David Drinkwater said:

    “What we think matters is AAPL’s commentary around supply constraints and path/timeline to alleviating them along with inherent steady state gross-margin expectations.”

    My take: you don’t need to be an analyst to figure this out.

    0
    October 29, 2017
    • Gregg Thurman said:

      ““What we think matters is AAPL’s commentary around supply constraints and path/timeline to alleviating them along with inherent steady state gross-margin expectations.”

      My take: you don’t need to be an analyst to figure this out.”

      No it doesn’t, BUT, you need to be an analyst before anyone will listen to you.

      0
      October 29, 2017
  2. Gregg Thurman said:

    “My take: Sounds about right. Whatever iPhone X orders get pushed back in December will pop back up by March.”

    I see FY2018 iPhone YoY growth at 15+% as follows:

    FQ1 8.58%
    FQ2 22.98%
    FQ3 20.96%
    FQ4 15.63%

    With a second OLED iPhone being introduced in 2018 I expect exceptional growth (albeit with a smaller YoY rate) for FY2019. I’m modeling 11.45%.

    Even though I’m currently seeing 291 Million units sold in FY2020 that works out to 3.88% YoY growth.

    iPhones will generate ~20 Million additional units sold each year from FY2018 – FY2020. HOWEVER, of those, about half will be derived from switchers. Sorry about that Google/Samsung. It does pay to innovate : )

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    October 29, 2017
  3. Robert Paul Leitao said:

    Mr. Daryanani is correct. Apple will sell in the December quarter as many iPhone X handsets as the company can make. Supply/demand equilibrium will not be reached until the March quarter.

    Apple’s super cycle will continue beyond FY2018. However, the important metrics to follow moving forward have less to do with quarterly iPhone unit sales and more to do with global engagement in the company’s eco-system.

    Mostly overlooked in the market’s obsession with the iPhone X is the success of the Apple Watch Series 3, the popularity of AirPods, rising revenue from iCloud services as well as the pending release of HomePods. Apple Music subscriptions are rising by the day. App Store activity is also continuing to rise as well as the amounts paid to developers that add value to the overall Apple product user experience.

    Apple’s gross margin will rise on a year-over-year basis through all four quarters of FY2018. But Apple’s ability to generate sufficient cash flow to continue share repurchases, annual dividend increases and fund greater capital investments to support eco-system growth and development are at least as important as the number of iPhone X handsets the company sells this quarter and every quarter of FY2018.

    Success of the overall eco-system is as important to Apple’s future as the number of iPhone X handsets sold are important to the company’s success today.

    1
    October 29, 2017
    • Fred Stein said:

      Thank you, thank you, thank you.

      Apple’s installed base is growing. Apple’s number of offerings to the installed base is growing. Apps alone are growing at 305 YoY. Personal health and on-demand video hold promise Too early to quantify.

      0
      October 29, 2017

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