“We suspect current street models are under-appreciating the typical seasonality Apple witnesses in the March quarter.”
From a note to Evercore clients that landed on my desk Sunday:
ALL YOU NEED TO KNOW: We expect AAPL will report an in-line to likely upside vs. street expectations for Dec-qtr, but we suspect current street models are underappreciating the typical seasonality AAPL witnesses in the march-qtr.
For context, AAPL has typically seen march-qtr sales down 32% q/q vs. current street models calling for a more modest 25% q/q drop, our updated model implies revenues in march-qtr will be around $85B (implying 28% q/q drop) reflecting some contribution from iPhone SE3 in the month of march.
Fundamentally, we continue to think AAPL remains a core mega-cap to own and they are well positioned into H2:22 with several key product launches.
Near-term, we think the risk is that estimates take a bit of a pause as street models for march/june appear to imply a better than seasonal pattern. Data points through the quarter have been largely mixed –
- China smartphone data shows a notable deceleration in Dec-qtr (Dec -15%, Nov +10% and Oct +88%); furthermore the December data suggested that perhaps the share gains vs. local OEMS have normalized,
- Delivery times for iPhones have continued to curtail and are close to normal levels, implying a healthy dec-qtr driven by better availability and likely channel fill,
- SensorTower data implies deceleration on services revenues with Dec-qtr pegged at +13% (Oct +16%, Nov +15% and Dec +9%).
Apple appears to have anticipated this slowdown with guidance calling for services revenue to decelerate. Net/net:Apple remains well positioned to deliver both secular earnings growth and significant capital returns over a multi-year period.
Maintains Outperform rating and $210 target.
My take: It’s all about the guidance for these guys.