UBS’ Apple analyst, Steve Milunovich, uses Google search data from over 20 countries to estimate iPhone demand. While he used information starting in the December 2008 quarter to develop his model he has been publishing the Evidence Lab estimates since the December 2014 quarter. In his latest survey it is indicating demand for 62.9 million iPhones, which is significantly above the 50 to 52 million the Street is projecting. (Note that I own Apple shares).
Expectations are muted for the March quarter
The Street, or average sell-side analysts estimates, projects Apple’s March quarter revenue to come in at $52 billion vs. the company’s guidance of $50 to $53 billion. To get to the mid-point of guidance the company will need to sell 50.5 million iPhones and to get to the Street’s $52 billion it will need to sell about 52 million when paired with reasonable estimates for Macs, iPads, Watches and Services.
Milunovich is using 52 million iPhones in his model and Katy Huberty at Morgan Stanley is using 49 million even though her AlphaWise survey is at 56.5 million. It does make sense to project a bit conservatively since last year there was pent up demand for the larger screen iPhone 6 which makes this year’s March quarter harder to model. Kantar’s data is showing typical seasonality while other factors such as China Mobile’s strong 4G customer adds and the potential for longer replacement cycles come into play.
At 62.9 million iPhones Apple’s revenue would be over $60 billion, significantly above guidance and expectations.
Source: Apple
I estimate that the iPhones average selling price (ASP) should be about $660 in the March quarter which would be down 4.4% from the December quarter’s $691. This compares to the past three years December quarter to March quarter ASP decline of 4.4%, 6.4% and 4.2%, respectively.
One swing factor to iPhone sales is channel inventory, which increased 3.3 million units in the December quarter to 21.6 million and was slightly above 5 weeks of sales vs. the company’s guideline of 5 to 7 weeks. For the past five years Apple has increased the iPhone’s channel inventory in the March quarter but it would not surprise me to see it flat to down this year since the 3.3 million unit build was above historical trends.
If channel inventory does decrease it would lower the number of iPhones that Apple reports it sold in the March quarter. However, the introduction of the iPhone SE could increase channel inventory (and add to the reported unit sales) since it would have had to deliver units to its carrier and retail partners.
How well has UBS’ Evidence Lab predicted iPhone sales?
Except for the first quarter that Milunovich published his estimate (December 2014) the initial Evidence Lab’s projection has been too high. I’ve used Apple’s iPhone sales adjusted for channel inventory and for the past four quarters the Lab’s estimate has ranged from being 3 to 7.8 million too high. On a percentage basis it has been 4.9% to 16.8% too high. If you modify the 62.9 million survey result by these percentages the “true demand” would be between 52.3 million and 59.8 million.
What this could mean for EPS
Apple doesn’t provide EPS guidance but it does give enough information to forecast a range. Based on the numbers from its January press release I project that Apple estimates EPS to fall between $1.87 and $2.05 with a mid-point of $1.96. Or at least that is what it wants investors to expect since the last time it did not beat the high-end of its EPS guidance was in the March 2013 quarter.
The Street has EPS at $2.00 for the March quarter with revenue of $52 billion. For each 1 million delta in iPhone sales it translates to $660 million in revenue and $0.03 to $0.04 in EPS. If iPhone sales are stronger than expected and EPS also beats this would probably lead to a ripple effect on future quarter’s revenue and EPS projections, which is $9.06 for fiscal 2016 and $10 for fiscal 2017.
