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.