Analyst sees Apple weakness in China smartphone data

The iPhone’s two biggest subcontractors have reported a combined 10% year-over-year revenue increase so far this year; Wells Fargo’s Aaron Rakers anticipates a ‘modest downside’ to his March quarter estimates.

From a note to clients that landed in my inbox Sunday:

Combined Hon Hai + Pegatron revenue for February totaled NT$354.6 billion, representing a 3% yr/yr and 32% m/m decline. More importantly (given the timing of Chinese New Year)[see note], January + February revenue of NT$876 billion increased 10% yr/yr… This would imply -36.8% sequentially vs. the 5 year average of -30% sequentially.

  • Hon Hai: Hon Hai sales in February totaled NT$277.8 billion, down 4% yr/yr; January + February +7% yr/yr. Using the historical average contribution for January + February to the total March quarter at 65.4%, we would be left to estimate +6% yr/yr for the March 2018 quarter.
  • Pegatron: Pegatron’s sales in January totaled NT$89.1 billion, +2% yr/yr; January + February +20% yr/yr. Over the prior 3 years Pegatron’s January + February sales have accounted for an average of 67.2% of total March quarter sales, which would leave us at a currently implied +23% yr/yr for the March quarter.

As we have highlighted in the past, Hon Hai + Pegatron revenue have a high historical correlation to Apple’s product (ex-service) revenue (R2 = 0.91) – using January + February data would suggest modest downside to our revenue estimate for the March quarter. Our analysis of Hon Hai + Pegatron revenue vs. iPhone shipments (R2 = 0.86) would also suggest the potential for modest downside relative to our 53.9 million estimate.

Note: Chinese New Year was in January last year and February this year.

Maintains Market Perform rating and $195 price target. 

My take: Rakers is THIS CLOSE to lowering his iPhone unit sales estimates.


  1. Michael Thompson said:

    Follow the paid for disinformation analysts to your own financial demise.

    Here’s Rakers downgrading Apple on 10/26/16:

    The stock closed the day at 115. You would have missed out on a more than 50% move in Apple in less than 1.5 years, not including dividends if you listened to Always Wrong Aaron.

    I’m shocked that we got more analyst disinformation right after hitting a new all-time closing high. Nope.

    Who are the analysts that can be counted on to tell the truth about Apple? Are there any that aren’t completely corrupt?

    March 11, 2018
  2. Tommo_UK said:

    Here we go again… “rumours in the supply chain” just as the stock approach the all time high.
    You can set your clock by these charlatans.

    March 11, 2018
  3. Gregg Thurman said:

    Wells Fargo? They should be run outta town their prognostications are so bad.

    March 11, 2018
  4. Gregg Thurman said:

    Historically Apple’s March quarter results decline 25%-30% from December results. Using nothing more than historical moves Apple’s March quarter will rise YoY by about 15%. THAT is nothing to sneeze at, especially in an environment where worldwide handset sales are very soft.

    That said I do not participate in unit volume guessing games, because the goal is revenue and net income, areas where Apple leads the industry.

    March 11, 2018
  5. Fred Stein said:

    Apple’s guidance for this Q is about 16% growth over Q2FY17.
    And they almost never miss guidance.
    And AAPL is trading below 14X forward EPS.
    Should we worry about one analyst’s interpretation of imprecise supply chain data?

    March 12, 2018
  6. David Drinkwater said:

    All the “downside” is a downside to Wells Fargo estimates. (I could present the word estimates in either asterisks to emphasize that they are only estimates and not actual values, or I could present estimates in quotation marks to indicate my opinion of their validity.)

    The important thing that is missing from this article (don’t even know if it is in the cited work) is a comparison of this years March estimate vs last year’s March reported result from Apple. We have a hint at the effect of a late Chinese New Year, but not the real data. My guess is that (Apple) FY Q1 + Q2 (December + March) is *up* vs last year (i.e. *upside*). But if that is less than Wells Fargo’s estimate, it only means that Wells Fargo’s estimate has a downside.

    March 12, 2018
  7. George Providakes said:

    In general, I applaud any analyst report that includes past performance in predicting sales and revenue. However, I am not as much of a believer on short term stock price predictions [30-180 day] since the market’s complex randomness and influence by irrelevant outside events.

    This analyst’s basis for projection based on correlation does not seem wildly off base, although, as Cook has repeatedly pointed out, using supply chain to predict Apple sales and revenue is fraught with illusion and incomplete information.

    Again, getting ahold of the excellent quantity and revenue from past predictions over the last 12-18 months should place this in a better context.

    March 12, 2018

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