There are multiple variables such as how many other products are sold and their Average Selling Price (ASP) that will determine Apple’s revenue and profits in the quarter. At 75 million iPhones the company would generate about $76.7 billion in revenue which is in-line with Apple’s $75.5 to $77.5 billion guidance and just below the Street’s projection of $77.3 billion.
Evidence Lab’s forecasts have been too high the past three quarters
Milunovich initiated the iPhone survey in the December 2014 quarter with a projection of 69.3 million iPhones. Due to the huge demand for the larger screen sized iPhones Apple sold 74.5 million in the quarter.
In the next three quarters his survey results have been too high, especially in the September quarter. In the March 2015 quarter it projected 64.4 million or 3.2 million (5.3%) too many, in the June quarter it was at 49.4 million vs. the result of 47.5 million (1.9 million or 3.9% too high) and in September it was forecasting 55 million but Apple sold 48 million (7 million or 14.5%). The September quarter estimate may have been thrown off by Apple launching the iPhone 6s and 6s Plus with only two selling days in the quarter but it feels like the survey would have still been too high.
Milunovich is maintaining his 78.4 million estimate
At 78.4 million units Apple would see a 5% year over year increase in iPhone units sold. This is possible since the company delayed the launch of the 6s and 6s Plus to have a larger portion of its initial demand fall into the December vs. September quarter.
This would also be a 63% quarter to quarter increase. For the past three December’s the quarter to quarter increase has been:
- December 2012: 78% with the iPhone 5
- December 2013: 51% with the iPhone 5c & 5s
- December 2014: 90% with the iPhone 6 & 6 Plus
Milunovich’s forecasts are close to the December quarter channel check from Credit Suisse but he is definitely above Credit Suisse’s March quarter outlook. I am currently projecting 78 million iPhones to have been sold in the quarter, which is just a bit below Milunovich but above the average Street estimate.
Lowered price target from $150 to $140
Milunovich did lower his March quarter iPhone projection from 62.5 to 61 million units. This would be flat year over year results for Apple and a bit worse quarter to quarter unit decline than it has experienced the past two years (22% vs. 14% and 18%, respectively). He believes Apple will continue to gain share with good margins so doesn’t expect a repeat of the late 2012/early 2013 timeframe when Apple lost smartphone market share and the stock took it on the chin.
His $140 price target is based on a 13.5x PE multiple on fiscal 2016 EPS of $10.30 vs. the Street’s $9.85. The PE multiple is about a 30% discount to the Street and about a 12x PE multiple when you exclude $17 in net cash (after additional taxes and cash to run the business).
