Based on channel checks, Longbow Research said it expects Apple Inc. (NASDAQ: AAPL) to report in-line results for its fiscal year third quarter, although China demand is seen lagging.

Key Takeaways

Analysts Shawn Harrison and Gausia Chowdhury gave their takeaways from their channel checks:

• Visibility into next-gen iPhone launch volumes or potential delays is limited.

• In line with expectations, the company lowered its iPhone 7 and iPhone 7 Plus production by 20 percent sequentially in the fiscal third quarter.

• Apple reduced 4 million iPhones from channel inventory last year, which will impact comparability.

• iPhone rumors are impacting sales in China, affecting both iPhone and China smartphone demand.

"There is no doubt that the iPhone is not selling well in China currently. Domestic OEMs are taking share, particularly Huawei. However, many people are waiting for the new iPhone. If big improvements are made, Apple will win back the lost share," the firm said quoting a contact.

Companies Reliant Overly On Apple

Longbow mentioned Amphenol Corporation (NYSE: APH), Diodes Incorporated (NASDAQ: DIOD), ON Semiconductor Corp (NASDAQ: ON) and Vishay Intertechnology (NYSE: VSH) as companies having more than 10-percent exposure to Apple.

Estimates Unchanged

Longbow maintains its estimates unchanged. The firm clarified that a typical 20-percent cut in iPhone production, contacts are suggesting, would drive flat to a 3-percent year-over-year decline in iPhone shipments, which reflect the consensus estimate.

Specifically, the firm expects fiscal year third quarter earnings per share of $1.75 on iPhone shipment growth of 0.8 percent to 40.7 million devices. This, the firm noted, compares to the consensus estimate of 40.8 million devices.

The firm estimates fiscal year 2017 earnings per share of $8.92 and 216.6 million units. For 2018, the firm's estimate calls for shipments of 243 million iPhones, up 12 percent, compared to the consensus estimate of 242 million units.

"Visibility into OLED/next-gen iPhone launch volumes and timing remains limited even as signs of pent-up demand are appearing," the firm said.

Apple At Buy

Longbow has a Buy rating and a $162 price target on the shares of Apple. The Buy rating is predicated on increased expectations for the pending OLED iPhone launch, diving upside versus consensus, and the firm's expectations of iPhone ASP in 2018 exceeding the consensus estimate, with potentially the ability to capture margin depending upon the rise in BOM costs.

In pre-market trading, Apple shares were up 0.65 percent at $154.99.

Related Links:

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Image Credit: By Aleeexfernandez (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0) or Public domain], via Wikimedia Commons

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