Katy Huberty doubles down on her supercycle thesis, dismissing recent reports of iPhone X production cuts as “supply chain noise.”
From a note to clients that landed in my inbox Tuesday:
Data through the 4 week period ending December 17th shows that Apple continues to gain share of the active base of smartphones in China (counter to the consensus view that Apple is losing share), capturing 21.3% market share, 250bps higher than their closest competitor (Exhibit 1)… Further, Apple continues to take the overwhelming majority of net “switchers” in the Chinese smartphone market.
She goes on to dismiss as “supply chain noise” recent reports of iPhone X production cuts.
In the last month two factors created noise around iPhone supply chain order revisions. First, Apple was able to build 7-8M more iPhone X units that we originally thought for December and that pulls in production from the March quarter. Secondly, some iPhone suppliers without yield issues built significant component inventory in December, causing weaker orders to those suppliers in the March quarter.
We believe recent supply chain data points are explained by timing and that the December + March quarter production plans are relatively unchanged from two months ago. Our view that iPhone demand is intact is supported by Hon Hai’s recent December month revenue beat of 48%.
On the back of the supply chain noise, we believe investors now expect March quarter guidance that implies 55-60M iPhone units compared to current sell-side consensus of 62M. We believe both buy- and sell-side consensus are unreasonable in light of current March quarter iPhone build plans of 64M, according to MS Greater China Technology Hardware analyst Sharon Shih. Furthermore, Apple typically beats the supply chain builds by 18%, on average, over the past five years suggesting reported iPhone units could be meaningfully higher than 64M.
My take: Unless there’s a math error in her spreadsheet, Huberty has buried the lead. Her model has Apple selling $60.8 billion worth iPhones in the March quarter, up from an estimated $58.2 billion in December (and up 88% year over year). That makes her an outlier. As near as I can tell, the rest of the herd has iPhone sales slowing, as usual, in March.