Apple’s June quarter: The handwringing on the wall

“Some of the downward revisions to June quarter estimates… based on supply chain data seem overly pessimistic and are occurring very early in the quarter.”  —BTIG analyst Walter Piecyk

From “The Handwringing On Apple’s Guide For The June Quarter Kicks Into High Gear,” a note to clients that landed in my inbox Friday:

We are 20 days into the June quarter and supply driven data points have already sparked concerns about Apple’s FQ3 guidance when they report on May 1st. There is certainly evidence to suggest that upgrade rates remain low and operator promotions continue to evaporate, which will provide a headwind to the June quarter. However, it’s unclear if it will be as dramatic as forecast and there are some positive data points emerging on ASPs.

We profiled Wave7 Research’s latest survey on the US market, [which] implied a positive trend in the mix of iPhones to newer models, providing a positive indicator for Apple’s ASPs.

  • The iPhone 8 recaptured its spot as the top selling iPhone in April after falling below the iPhone 8+ in March, when operator promotions favored the 8+.
  • The mix of iPhone X increased again in April to 28.4%, its highest share to date.
  • The mix of iPhone X has increased every month since introduction in November 2017.
  • Interestingly, legacy iPhone share declined by 200 basis points sequentially to 11.9%, which is their lowest level since the introduction of the iPhone 6S/6S+ in the fall of 2015 and are a positive sign for ASPs.

Buy rating, $198 price target unchanged.

Chart below:


My take: The consensus swings one way, and then it swings back.


  1. Robert Harris said:
    My take is this happens so much to Apple, clearly many Apple investors hear the sky is falling and they fall for it each time. I’ll be much happier when Apple has bought up so much more of this cheap stock. For now keeping the price low plays right into Apple’s hand. If it was almost any other company I swear I would think they were behind these stories. You can buy a lot more at 160 than 200.

    April 20, 2018
  2. Fred Stein said:
    To understand the impact of cap return and to rise above the noise about missing false expectations, I modeled five years out using a few simplistic assumptions
    1) Revenue is based on Yahoo analysts and then flat after 2019.
    2) Buybacks at 6% of outstanding each year
    3) Dividend increases 14% each year
    4) Stock price increases 12% each year (Starts at $165)

    These modest assumptions yield the following results:
    1) This only consumes $167 of cap return; $134B buybacks and $33B dividend.
    2) The ending stock price is $291
    3) The total cumulative gain is $144 per share or 87%
    4) The payout ratio at the end is below 30%

    Increases in cap return and / or in earning post 2019 increases the shareholder returns.

    April 20, 2018
    • Fred Stein said:
      Oops caught a big error – The cost of buybacks would be $312B or total cap return of $345B. This is still achievable unless AAPL rises faster than 12% annually.

      April 20, 2018
  3. Gregg Thurman said:
    Since Maestri became Apple’s CFO, Apple has bought back and retired shares at an average 4.81% YoY rate. For FQ1/2018 (December quarter) Apple reduced share count 3.19% YoY. I believe the rate reduction was in anticipation of new tax legislation looming on the horizon, which means a return to the average (at minimum) reduction for the March quarter (using newly replenished US-based funds).

    From FY2011 AAPL has increased an average 4.85% per quarter. This includes the good, bad and ugly quarters. Omitting those quarters (7 out of 28) increases average quarterly increase to 9.06%.

    During the same period, AAPL increased an average 24.27% per year. This includes the good, bad and ugly. Omitting the good, bad and ugly years from the average results in an average increase of 36.63% annual gain.

    For the last 3 years (FY2015 – FY2017) AAPL increased an average 18.95%. As before this includes the good, bad and ugly. I think your 12% annual growth rate is very reasonable.

    “This is still achievable unless AAPL rises faster than 12% annually.”

    My take on AAPL rising faster would be that net FCF is increasing (proportionately) as well.

    April 20, 2018
  4. Gregg Thurman said:
    I’m surprised by the product mix chart. I would have thought early adopters would have spiked the mix in the leading quarter in favor of the newest model.

    That the iPhone ASP drops in the March quarter leads me to believe two trends are in play.
    #1 Unit sales of new model Plus versions have declined and,
    #2 Larger memory versions of the new models have declined.

    IOW, consumers are buying the lower cost new models in favor of all models (including legacy) offered. From a revenue generation point of view (what other meaningful point of view is there?), clearly, the iPhone X is a success.

    April 20, 2018

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