Morgan Stanley slashes June iPhones, trims Apple target

Katy Huberty now expects Apple to sell 34 million iPhones in the June quarter, down from her 40.5 million “super cycle” estimate.

An excerpt from “Cautious Into The Print; Buy Any Post-Earnings Dip” posted Friday morning on CNBC.

We expect Apple to report an in-line March quarter, but are cautious into earnings on May 1 due to our belief that June quarter consensus estimates need to be revised lower. Additionally, with expectations for a step up in capital returns at least partially embedded in valuation … Apple’s capital return announcement could amount to a ‘sell the news’ type of event, especially if forward estimates are revised materially downward.

Maintains Overweight rating, trims price target to $200 from $203. 

My take: Waiting to get my hands on the note, but it sounds like Huberty now concedes that the iPhone super cycle she promoted didn’t come to pass. Meanwhile, according to CNBC, she sees any drop in the stock as a buying opportunity.

7 Comments

  1. Stephen Young said:
    Hmm I hope she is wrong since 40.5 million iPhones for the June Qtr represents a flat YoY unit sales and not a super cycle (June 17′ was 41 million iPhones), so 34 million is quite a drop (17% YoY). No matter if all these dire predictions for June are right or not I am still a long term buy and hold APPL investor.

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    April 20, 2018
  2. Kathy Corby said:
    You know I wondered this morning if the company observes a blackout period prior to earnings from buybacks. If so, it would likely be 10 days prior to earnings, since I believe that individual executives typically observe that to avoid SEC scrutiny. If so, we may have seen the Tim Cook put drop out of the market today. Just sayin’– I think I will hedge for earnings at 11 days prior from now on.
    Does anyone know for sure if there is a corporate blackout?

    1
    April 20, 2018
  3. Fred Stein said:
    It’s wise to take these reports with a grain of salt, and likewise the prior hyped up super-cycle, a theory created by analysts and journalist.

    The important stories are buybacks, dividend growth, and the growing ecosystem. Boring? Yes. We’ve all harped on these points before.

    Regarding the lowered outlook specifically: This is not so surprising. Older iPhones, including all 6, 6S, and 7 are great phones. Many 8 and X buyers have put these great phones into the used market competing with brand new iPhones. The battery upgrade program may also dampen sales a tiny amount. For long term investors, this is positive. It creates a wide moat vs. Android. It enhances future revenue for Apps, Apple Watches, AirPods, Apple Pay, Music, and maybe Apple TV and HomePod. If shallow thinkers sell AAPL, the buyback program will be slightly more effective.

    Finally, there is one caution – Local competition in China. In China, the user’s experience is WeChat, not the SmartPhone.

    1
    April 20, 2018
  4. Gregg Thurman said:
    I have a serious problem with Huberty’s reduction in iPhone unit sales, and her revenue estimate.

    Using her numbers iPhone continues to represent ~61% of total revenue. So what Huberty is saying is that Mac revenue, iPad revenue, Apple Watch revenue and Services revenue are all going to decline at the same rate as iPhone. I don’t see that happening.

    Computers have long ago hit saturation, unit sales today are essentially replacement devices. You can see this in growth rates over the past several years. IPad units continue to decline, but at a slower rate than before. Apple Watch unit sales are expanding rapidly (40+% per annum?). Which leaves us with Services revenue. Apple Music subscriptions are accelerating, I think due to the HomePod. I know I wasn’t a subscriber until after I bought my HomePod (that I love).

    I’m modeling 52 Million iPhones that show show overall revenue at the high end of guidance, which is how actuals are performing against Maestri’s guidance for the past 2 years.

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    April 20, 2018

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