From a note to clients that landed in my inbox Thursday:
Based on our detailed analysis of supply chain companies with historically high correlations to iPhone unit sales, we revise our iPhone unit estimates to 51.0M in FQ2 and 38.8M in FQ3, below our prior forecast (52M, 41M) and consensus (54M, 43M). That said, we note that buyside expectations have come down considerably in recent weeks, and while such numbers would represent materially weaker than normal iPhone seasonality, they appear to be increasingly within the range of expected outcomes…
Apple will provide an update on its capital return program on its earnings call. Overall, we estimate that Apple could raise its total capital return authorization by $180B over 2.5 years, buying back an additional $50B/year in stock and increasing its dividend by 15-20%.
While Apple’s expected large capital return program could mitigate the impact to earnings from weak iPhone, we think that on net, FY 18 and FY 19 earnings are more likely to go down than up. Moreover, we believe that the investor narrative post-earnings will likely be dominated by the question of whether the iPhone business can grow over time. Given that Apple’s current valuation is relatively in-line with historical averages, we view risk-reward on the stock as relatively balanced.
My take: I have a lot of respect for Bernstein, but he’s a bit of a showboat. He knocked the stuffing out of his Apple estimates just before earnings last quarter, and now he’s done it again.
Below: A good ASP chart.