From a note to clients by analyst Timothy Arcuri that landed on my desktop Wednesday:
March iPhone mix continues skew lower…
Based on new supply chain model from UBS Asia team (here), we see overall March iPhone units tracking about in-line, though mix continues to shift lower. March Q build looks largely unchanged at ~40MM units, though we estimate iPhone 8+ and prior generations have increased ~5MM units, fully offsetting a similar cut to new models (XR/XS Max each 2MM lower and XS ~1.5MM lower). With no other changes to our ASP or memory mix assumptions and iPhone sell-in still ~42MM units, this implies overall iPhone ASP $687 (prior $711 and now -5% Y/Y) and iPhone revenue down from $30.2B to $29.2B. Owing to this lower blended iPhone ASP, we cut total March revs/EPS from $57.5B/$2.40 to $56.5B/$2.33, or to lower half of the $55-59B range.
… expect more of the same in June, but worst of the bad news now behind us
While March mix is still bad, the tone in the supply chain is staring to improve and price reductions in China may be starting to clear channel inventory. Procurement estimates for XR are actually now up Q/Q in June – atypical for this late in a “new” model cycle (good near-term for QRVO), but reflective of inventory burn. We increase June iPhone units from 32.5MM to 34.5MM based wholly on more older units w/ new units unch’d. Within new models, however, we now see 3MM more XR offsetting 3MM less XS/Max which, together w/more old units, is bringing ASP lower again (now $655 versus prior $683). Even on lower iPhone ASP, we still slightly increase overall revs/EPS for June from $50bn/$1.98 to $50.4bn/$2.01. We continue to believe AAPL will retain the LCD version this Fall (good for AVGO), but all three models will go OLED in 2020.
Maintains Buy rating and $185 price target.
My take: It’s dawning on me that Wall Street will never stop counting iPhone units.
Eye-opening chart: How Apple trades relative to the S&P500.