Toni Sacconaghi: ‘iPhone weakness vs. the buyback bazooka’

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.

buyback bazookaClick to enlarge. 


  1. Robert Paul Leitao said:
    One day, someday analysts will look beyond the iPhone and understand Apple is engaged in the biggest asset transfer from an enterprise to its shareholders in history. The magnitude of cash generation from operations to fund the ongoing repurchase of shares and fund the quarterly dividend is far more important than the quarterly performance of any one of the company’s product and services lines.

    April 27, 2018
    • David Drinkwater said:
      I hope you’re right, RPL, but I would be (honestly) happier to see moderate, continuous cash return and continued, CONSISTENT “WOW” in technological/UX advancement.

      “So far, so good”, but I hope for so far into the future, so much better.

      [Better than what we have today.]

      April 27, 2018
      • Robert Paul Leitao said:

        The Street continues to discount the value of Apple’s cash position. Under the circumstances, distributing cash to shareholders through a consistently rising dividend and ongoing share repurchases is the most efficacious means to further shareholder value.

        I’m quite impressed with the pace of innovation across Apple’s three major device lines. With over one-quarter trillion dollars in annual revenue and five large revenue segments, the revenue mix will be dynamic and each segment will deliver growth at different rates.

        April 27, 2018
  2. Michael Thompson said:
    April 27, 2018

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