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Strong iPhone X Demand Points To Apple Earnings Upside

While some in Silicon Valley and Wall Street debate whether it was wise for Apple (AAPL) to release two new phones so close to each other, others are looking at where it will lead.

X Namely, analysts wonder if Apple's decision to release the iPhone 8 within weeks of what will be its top model, the iPhone X, will help or hurt the company in the long run. While iPhone 8 sales have been lackluster so far, Apple could have a hit on its hands with the more-profitable iPhone X.

UBS notes that survey results from 451 Research indicate stronger-than-expected demand for Apple's upcoming iPhone X handset could result in upside to the company's fiscal 2018 earnings. The group says 43% of likely iPhone buyers in North America plan to get the iPhone X in the next 90 days.

Consensus estimates on Wall Street are modeling the iPhone X to make up 35% to 40% of sales this fiscal year with iPhone unit growth of 10% to 15%, UBS analyst Steven Milunovich said in a note to clients. Apple's fiscal year 2018 started Oct 1.

"Our model assumes a 35% global contribution" from the iPhone X, Milunovich said. "If the X were to represent 43% on the same 15% unit growth, then fiscal 2018 EPS could be $11.40 rather than our current $11.15 estimate."

The iPhone X is Apple's premium model with a starting price of $999. Analysts say it is likely to have a richer profit margin than other handsets in the lineup.

The 451 Research survey indicated that 30% of likely iPhone buyers planned to get the iPhone 8, which was released on Sept. 22.

"The iPhone X has an attractive form factor change, but it's also $200 more expensive so we didn't want to get carried away," Milunovich said in his note, issued Monday. "Also, consumers outside the U.S. might be more price sensitive. Still, this survey suggests that the primary reason for soft iPhone 8 sales is interest in the iPhone X, if not firm purchase plans at least wanting to see the X before making a decision."


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Overall iPhone purchase intent looks healthy over the next three months, Milunovich said.

Among likely smartphone buyers over the next 90 days, 69% plan to buy an iPhone, according to 451 Research. That's the highest level since the iPhone 6 at 71% in 2014.

Milunovich rates Apple stock as outperform with a 12-month price target of 180.

Apple stock was up 0.6% to close at 157.10 on the stock market today.

Prolonged iPhone X Shortages Expected

Meanwhile, sources told the Nikkei Asian Review that Apple will ship only about 20 million iPhone X units in 2017. That's about half of what Apple had originally planned, the Japanese business publication said Tuesday.

Apple's reliance on Samsung as the only OLED display supplier and issues with a component of the 3D sensor system have caused ongoing delays with the new handset, the report said.

When Apple begins taking preorders for the iPhone X on Friday, you can expect to see shipment dates quickly push back by many weeks, Drexel Hamilton analyst Brian White said in a report Tuesday.

"We expect shipment times to surge on Friday with very few consumers actually able to take possession of the new device in November," White said. "Those that wait until later in the day or beyond (to preorder) may not even receive the iPhone X for the holidays."

The delays likely will result in higher iPhone sales in the March and June quarters, he said.

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