By this time last year, wait times for the iPhone XS and XS Max had shrunk to 3 days.
From a note to clients by analyst Matthew Cabral that landed on my desktop Monday:
As of Friday (21 days post-launch), wait times for the iPhone Pro/Pro Max remain >1 week in each of the eight geographies we’re tracking, and while they’ve modestly shortened vs. our last update in several markets, this year’s launch has now remained supply constrained longer than the XS / XS Max release which reached equilibrium within three weeks (see Figures 7-12 for details on iPhone wait time by model, memory capacity, and color across eight major countries)…
We’d highlight that while wait times are a rough proxy for initial demand, the metric is only one of many variables impacting iPhone sell-through; the availability of supply is a key unknown, particularly for different color / memory options. This year’s all-at-once launch timing vs. last year’s staggered release schedule could also skew the y/y comparison. In terms of methodology, our data is based on shipping lead times for iPhones purchased directly through Apple’s website in several major markets around the world. Note that our data does not capture demand/inventory through Apple’s physical retail stores nor their vast distribution channel including carriers and retailers. We plan to refresh this analysis regularly until all newly-launched models reach supply/demand balance; last year, it took three weeks post-launch for the iPhone XS / XS Max to reach equilibrium in all markets tracked and two weeks for the iPhone XR.
Maintains Neutral rating and (underwater) $209 price target.
Cue the spreadsheets:
Click to enlarge.
My take: As Cabral points out, the availability of supply is a key unknown. See Toni Sacconaghi’s even more bearish take here.
Credit Suisse’s Apple analyst’s interpretation of facts has been among the worst for as long as I have owned Apple (a very long time). For years, the analyst would repeatedly raise the price target such that it remained $15-$25/share lower than Apple’s then current price. In other words, she was consistently far behind the curve of analysts.
In this case, the facts, on their face, suggest demand is better than expected.
Whatever happened to DB’s Sherri Scribner and Colin Gillis?
Hence, the very least we can expect is Apple coming in at the top end of it’s guidance ($61-64 B). Apple’s best fy Q4 ever was last year’s $62.9 B.
And yet – this outfit’s yearly high estimate is appreciably underwater even now.
Kind of says it all….
Since Luca Maestri’s (my CFO idol) arrival Apple consistently performs closer to the high end of its guidance than it does the midpoint.
From FY2015 through FY2018 Apple shipped, on average, 5,750,000 iPhones per week. Given the near 11% decline in iPhone revenue during FQ1/2019 I’d estimate that unit volume declined about 9% (partially offset by higher ASPs). That was an outlier year as the decline was limited to the Chinese market and signaled not a decline in interest for the iPhone, but a decline in the Chinese economy.
This year the December quarter has a more traditional 13 weeks. It could be argued that the average weekly units shipped occurring between FY2015 and FY2018 when applied to 13 weeks will yield 74,750,000 iPhones shipped this coming December quarter. Because initial buyers are hanging on to the smartphone longer I disagree with the above assumption. But that doesn’t matter because of iPhone ASP’s significant increase brought about by the iPhone X series of iPhones, and the elimination of the iPhone SE.
What I infer from all this is that, with the less expensive iPhone 6 style models being filtered out of the available iPhone product line (helping generate higher ASPs), iPhone REVENUE will, at minimum, match its highest point since the iPhone 6 (iPhone 8 $61,576,000,000).
That revenue will be partially understated as it will be declared Services revenue to fund the one year Apple TV+ promo. The fact remains that the revenue was earned, not where it is declared. Ergo, overall revenue for the December quarter, because of iPhone demand, will grow at least 1%, resulting in a record overall revenue quarter exceeding $90,185,000,000. That level is greater than current WS expectations* and will then come as a surprise that will drive AAPL higher post-earnings.
*Currently estimize.com shows WS consensus Apple revenue for FQ1/2020 at $85.408 Billion, just barely over the failed FQ1/2019. It should be noted that Apple’s FQ3/2019 revenue exceeded its FQ3/2018 revenue (setting a new FQ3 record) and is on track to exceed FQ4/2018 revenue, also setting a new record FQ4 record). Even WS’s per usual conservative consensus has FQ4/2019 revenue exceeding FQ4/2018 revenue by 1.75%.
At the time FY2018 quarters were setting quarterly records. The only outlier to that string of records was FQ1/2019 and FQ2/2019.
Also a clarification, “5,750,000 iPhones per week” applied to FQ1 only, not full-year results.
2) Services and buybacks, not iPhone units, determine long term AAPL price. So why all the spreadsheet?
3) The $209 PT is just a guess. So why all the spreadsheet?
Apple’s success is measured over years, not weeks. Services attachment and rising revenue per customer through the sales of constituent products such as Air Pods and the Apple Watch are also important to the company’s success.
While early reports of strong demand are encouraging, FY2019 results provide for a soft compare.