From a note to clients by BTIG’s Walter Piecyk that landed in my inbox Friday:
Smartphone upgrade rates remain at record low levels and do not appear poised to rebound in the first calendar quarter. Reduced iPhone promotions could be having an impact (as previously discussed), but the sustained lengthening of the replacement cycle appears driven simply by customer choice to hold onto their phone longer. We reduced our estimates in Apple as detailed in the note below and are concerned that revenue guidance for the March quarter could be as low as $60 billion versus a consensus of $68 billion.
Concerns about iPhone X sales have been well documented. Apple’s stock has shrugged off a slew of analyst and press reports that highlight these trends. Despite these concerns, Apple will still be able to grow its iPhone unit sales, just not necessarily at the rate that consensus expects. The incremental concern is whether Apple’s can hit or even come close to consensus revenue estimates in future quarters, due to its reliance on ASP growth. ASPs are now much more difficult to predict due to Apple’s broader and more price diverse product line.
We believe guidance for FQ2 revenue could be as low as $60 billion compared to current consensus of $68 billion. We reduced our FQ2 revenue estimate by $2.5 billion primarily based on a 7 million reduction in the number of iPhones we expect to be sold to 53 million. This was partially offset by a $33 increase in our ASP assumption, detailed below, and higher estimates for the iPad and Services segments. Our estimate reflects a sequential decline in iPhone ASP, while the consensus estimate assumes a sequential rise in ASP, which has not happened since 2011 when Verizon first started selling the CDMA version of the iPhone 4.
Price target unchanged at $198, but Piecyk advises clients to avoid trading the quarter given the wide range of ASPs.
Below his ASP spreadsheet:
My take: Piecyk is punting, and I can’t say I blame him. The Street is all over the lot.