Apple Investor Weekly works to curate some of the more relevant articles and information related to the company’s financial outlook. This week it contains negative articles from the Nikkei Asian Review and Goldman Sachs along with low iPhone growth projections through 2020 from IDC. These were partially offset by positive comments by Broadcom’s CEO on his earnings conference call about the iPhone 7 (in code) and continued demand for the iPhone SE. It also includes thoughts on Apple’s Pay, Watch, TV and India stores. (Note that I own Apple shares).
After beating the S&P 500 and NASDAQ for two weeks Apple reverted to underperforming. The week started off poorly for Apple with a report from the Nikkei Asian Weekly that it will likely take three years between full-model changes vs. what had been two. It was followed up by Goldman Sachs lowering its iPhones estimates, especially in fiscal 2017 and 2018, and price target from $136 to $124 and Mary Meeker from Kleiner Perkins postulating that iPhone sales had peaked.
With Friday’s closing price of $97.92 the stock has stayed above its August 7, 2014, close of $94.48, the August 24, 2015, intra-day low of $92.00 and the recent February 11 close of $93.70. From a technical perspective the shares have moved from a slightly oversold position to a very neutral position (see chart at the end of this note). Apple’s shares were down 2.4% for the week, which ended its two week outperformance and compares to the S&P 500 being flat and the NASDAQ’s small increase of 0.2%.
Broadcom outlook positive for the iPhone 7
On Broadcom’s second quarter’s conference call its CEO, Hock Tan, said “Moving onto third quarter, we’re expecting a very different picture for our wireless segment and expect strong sequential revenue growth in the mid-20% range. The expected growth is driven by the start of a ramp from a large North American smartphone customer as they transition to their next generation platform enhanced by a substantial increase in Classic Avago's RF content in this new handset.”
The big question is how much of Broadcom’s positive outlook is due to iPhone unit growth vs. increased Broadcom content in each smartphone.
iPhone SE still seeing strong demand
I have been tracking Apple’s iPhone SE lead-times since March 30, the day before they became available. While lead-times are not an exact science to determine demand and won’t resolve the difference of opinion on how it is doing, I believe it is worthwhile to see how they change until they get down to one day. On April 16 all the lead-times for AT&T, Verizon and the China models on Apple’s website had lengthened to 2 to 3 weeks and have stayed there as of Saturday, June 4, 66 days after it was first sold. Even the iPhone 6 and 6 Plus were starting to see shorter lead-times at this point in their availability. While I don’t believe the SE is seeing the same quantity of demand as the 6 if lead-times are any indication the SE is doing well.
IDC forecasts 3% CAGR for iPhone’s through 2020
IDC believes Apple can bring the iPhone back to growth in 2017 and beyond supported by its early trade-in program as well as the lower cost iPhone SE but only growing at 3% per year. The company continues to make inroads in China with development in tier 1 cities and is actively trying to penetrate higher growth markets like India and Middle East. The larger screen iPhone 6 Plus and 6S Plus will continue to grow its share of all iPhones shipped, increasing from 26% in 2016 to 32% in 2020.
Despite rejection by the country's finance minister, Apple still has a chance at opening stores in India in the near future, a different high-level government official indicated. India’s Commerce and Industry minister Nirmala Sitharaman told reporters said he would be talking with Arun Jaitley, India’s Finance minister, who said Apple would not be able to open its own stores without sourcing 30% of the components in India.
Apple Pay isn’t ramping much beyond the US
From a Reuters article research firm Timetric estimates that Apple Pay is very US centric and has only made a small dent in the global payments market with $10.9 billion in transactions last year. The service is only available in six countries and usually with a limited number of banks. In Canada it did add BMO, TD and Scotiabank last week to go along with the Royal Bank of Canada and Canadian Imperial Bank of Commerce.
Are Developers Losing Interest in the Apple Watch?
From a undefinedBusiness Insider UK article Tim Anglade, vice president of mobile database Realm, said that “on a weekly basis for every 1,000 new iOS apps Realm is seeing only 1 Watch app and 10 tvOS apps”. The downtrend in Watch apps follows a large spike after it was released.
However two-thirds of Chinese Consumers Plan to Buy a Smart Watch in 2016
In a recent survey in China ABI Research found that close to two-thirds of the respondents are planning on buying a smart watch in the next year. While this is positive for the segment I do wonder either how accurate the data is or how limited it must be since there is no way that about 900 million Chinese are going to buy a smart watch in the next 12 months.
Given that caveat the survey found that demand is being driven by affordable pricing, good design, and comprehensive feature set. Some of the region’s richest consumers consider branded smart watches, like the Apple Watch, to be a desired status symbol but pricing structure, though, is where the smart watch market could see device divergence by manufacturer.
The Apple TV shoots from ninth to third place in global set-top box sales
IHS estimates that Apple TV has moved from ninth to third place in revenue in 2015 for set-top boxes. Arris was in first place with $3.5 billion in revenue, Technicolor in second with $2.5 billion and Apple taking the bronze with about $1 billion.
Source: IHS Inc.
Stock’s valuation
At a closing price of $97.92 the shares are at a PE multiple of 11.8x on fiscal 2016 EPS of $8.28 and 10.7x on fiscal 2017 EPS of $9.11. When you take into account my estimate of how much excess cash of $19 per share the PE multiples become 9.5x and 8.7x.
Apple 3 year chart. Staying above support level.
StockCharts.com shows the shares came close to its 50 day moving average (blue line) and fell back. Both of its overbought/underbought indicators are in neutral territory. Its RSI (Relative Strength Index, the top third of the chart) is at 50.68 (last week was 60.09) and its MACD (Moving Average Convergence Divergence, the bottom third of the chart) is at -1.029 (last week was 1.316). As you can see from the changes in the RSI and MACD these can move quickly which means these are short-term indicators.
Source: StockCharts.com
Ewan Spence’s roundup of Apple consumer oriented news
Ewan Spence rounds up the rest of this week's consumer news from Cupertino in Apple Loop here on Forbes.
Apple Investor Weekly strives to compile some of the most relevant and interesting investor oriented news. You can find last week’s Weekly here.
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