iPhone: Morgan Stanley sees blowout March

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.

supply chain noise china share

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.

17 Comments

  1. Patrick Beyrouti said:

    Seems off somewhere…
    The $60 Billion is certainly for total Apple revenue for Q2. UP from $52.8 Billion last year,
    Decent growth, up 14% OKKAAAYYYY
    Total iPhone last Q2 was 50.7 million units, if they sell 60 million with an improved ASP, we might get total iPhone revenue up to $43 billion.

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    January 24, 2018
    • I’m staring at Huberty’s spreadsheet. She’s got total rev. for fQ2 at $83.117 billion and iPhone revenue at $60.794 billion. She describes her position as “out of consensus bullish.” Could be a math error on her part.

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      January 24, 2018
      • Patrick Beyrouti said:

        With all due respect , she is wrong at best and dishonest with her clients at worst ! Why would she do that ???

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        January 24, 2018
      • Ken Cheng said:

        So, you’re saying Katy, in addition to Brian White is the other analyst with a high March estimate that you referred to earlier, in looking at the analyst tracker, and also hinted at in that Barron’s article?

        Okay, looking at the Yahoo analyst tracker page, and the high March rev estimate is $83.2B, with EPS of $3.76. Is that Huberty?

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        January 24, 2018
  2. Fred Stein said:

    There’s another glitch in data, or at least potential.

    The chart of active SmartPhone market share dips in September for iPhone and then bounces back. Since this is active and not shipments market share, monthly variations should be much smaller.

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    January 24, 2018
  3. Fred Stein said:

    I just looked at Katy’s report including a full income statement model. It shows FY18 top line coming in at 35% higher than FY17 and the report’s price target is $200.

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    January 24, 2018
  4. Robert Harris said:

    I’ve got to believe by now she has been questioned, odd no recall. Well the market hasn’t bought into her March Qtr estimate

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    January 24, 2018
  5. Robert Paul Leitao said:

    There are a few factors that will heavily influence reported iPhone unit sales in the March quarter. These factors include Apple reaching global supply/demand equilibrium on iPhones and bringing channel supply into the desired target range moving forward. Another of the factors is the demand for the iPhone X in Greater China during the March quarter.

    iPhone unit sales in Greater China had been in decline since the last so-called super cycle in FY2015. In that year revenue in the region rose nearly 85%. There’s significant potential for growth in the region this fiscal year. While Ms. Huberty’s bullish scenario for the March quarter may seem aggressive, her projected outcome is plausible.

    2
    January 24, 2018
  6. Ken Cheng said:

    Huberty is the analyst with a sensitivity analysis built in, with bullish, bearish, and likely results, which she carried on from Mary Meeker. I wonder if her numbers are showing the “bullish” results, and not her likely results. Sometimes you add a line to your spreadsheet, and your results get skewed by it.

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    January 24, 2018

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