The Great 2016 iPhone Crisis (of Confidence) + $AAPL FQ1 2016 Revenue Mix “First Look”

If you prefer to only focus on iPhone, I’ve re-posted that one section here as a separate post for additional clarity and brevity.

Everyone knows that it’s out there, so I’ll spare you all the novella…on this particular sub-topic. (New Readers/New Readers from Apple News: Big-time TL;DR warning. Sorry, earnings doesn’t lend itself well to bite-sized analysis.)

All that “iPhone unease” on Wall Street (or piling on by various other journos, bloggers, etc.) that’s out there? An apparent excuse for AAPL trading at such a…appreciable discount to…a few indexes you might know? That’s why I made the (unspeakably “gorgeous”) iPhone Wall of Worry some months back. And generally speaking I think it’s still holding up quite well.

It’s probably not too far off the mark to say the “over/under” on iPhone is quite literally…whether iPhone unit sales are over or under the FY2015 total of about 231.1 million.

There are many guesses, all of them…well, no more than guesses, even the most educated ones. Whether iPhone unit sales will grow for all of fiscal year/calendar 2016 isn’t something anyone can know, and it’s hardly something Apple of all companies will ever give insight into…except, indirectly, by necessity, in the context of FQ4 2016 guidance. 😀

Base speculation on “Peak Apple” has failed, badly, since the last time Apple actually posted a true decline in YOY revenues. Which was…well…probably a few years before the iPhone Era. The point is, just arguing about it really doesn’t advance understanding. Apple looks about 90 days ahead, when Tim and Co. aren’t talking megatrends or very broad topics on conference calls, and that’s that.

So, as is the wont of your humble correspondent, let’s start with the most knowable known out there – Apple’s own revenue guidance for the biggest, iPhone-heaviest fiscal quarter it will have in FY 2016 – and see if a little home gamer guesswork, involving actual dartboard-toss “educated guesses” typed in an actual blog post, can’t compare numbers to narratives.

…I know, an actual revenue mix preview. Last seen in February 2015? Well, since I’m newly on the Apple News RSS list (please do subscribe to the channel, I promise to update…quarterly? 😉 ), and since iPhone Worry is such a hot topic, and since I haven’t updated the blog in a while, why not.

(FIRST, A REMINDER: Please refer to the About + Disclaimer section. You won’t ever find actionable investing/trading advice here, just a humble home gamer in his little corner of the Web trying to understand Apple and tech a bit better. As you know, no one has any clue what AAPL stock will do from day to day, quarter to quarter, year to year, even if earnings “seem good enough”.)

Firmly in the (Revenue) Mix

Apple’s guidance for the recently ended December/holiday/”bound-to-disappoint” fiscal quarter remains:

  • revenue between $75.5 billion and $77.5 billion
  • gross margin between 39 percent and 40 percent
  • operating expenses between $6.3 billion and $6.4 billion
  • other income/(expense) of $400 million
  • tax rate of 26.2 percent

We’ll leave that notable YOY jump in OpEx (~14.5-16.4%) aside for purposes of this post, and choose a number within Apple’s $75.5-77.5B revenue guidance – which, despite fierce, longstanding ForEx headwinds, will represent unadjusted growth from the year-ago $74.599B result. Provided actual results meet or exceed the range, of course.

I’m going with $77B, which is both within the guidance band, and quite achievable, which I’ll explain further in a moment.

Now, can we be certain Apple won’t surprise to the downside? No, of course not. Guidance isn’t guarantee. “Anything’s possible.” iPhone could always turn out weaker than expected, or the overall iPad line weaker still. “Black Swan Event” this or that.

But really, calling the top immediately after Apple’s most astonishing growth year of all time? Simply because of some “sense” that Apple “can’t possibly top that”, which itself is a grossly improper and out-of-context way to evaluate (a) uncharted revenue territory for any tech company, especially a pure-play, consumer-oriented tech company that (b) is rewriting all of the top-profiting “regular ol’ corporation” record books worldwide? Because of extrapoljection of external economic forces that “typically” could affect “typical” companies?

It’s exalting “luck” over business process and execution, the “average” over the exception to the rule. To say “well, smartphone growth is slowing down as a whole” is a similarly facile repudiation of all of Apple’s fiscal 2015. And don’t get me started on “Apple can’t grow iPhone like it did in FY 2015” – it’s a red herring, since we already know about that (see my pet “business physics” theory, and my aforementioned iPhone Wall of Worry – for what little it’s worth, my personal horseshoe toss on iPhone unit growth is in the 10-15% range, nothing close to 25%).

I did “promise” to “not just argue about it”, though. So here’s two data-derived points as to why a “low” FQ1 revenue number is highly unlikely. First, a quick look at Apple’s history of range guidance since the most recent institution thereof, beginning for FQ2 2013:


In 11 quarters of provided range guidance, Apple “met” its own guidance range bar three times (comfortably), and exceeded it eight times, with FQ1 2015 being a touch of an outlier. The “worst” within-guidance result, in FQ3 2014, was still within “the 70th percentile”, a decent $400M above the then-$37B guidance midpoint.

Consider also that relatively-new CFO Luca Maestri, since formally taking over the position in June 2014 (call it “the end of FQ3 2014”), has not guided “in-line” for five consecutive fiscal quarters (read: he may actually be even more of a sandbagger than Oppenheimer), and a reasonable guess could be made as to the general direction of the sixth fiscal quarter over which he will “officially preside”.

There’s also the matter of possibly over six million iPhones, waiting to be recognized.

In case you missed the pun – I meant recognized as revenue in FQ1 2016, due to Apple’s decision to launch iPhone 6S with only two selling days in FQ4 2015, versus the “usual” nine. I “estimated” the FQ4 2015 headwind at 6-8M iPhone units – and given iPhone 6S pricing and mix, it’s not hard to see $4B+ in revenue impact.

With the $4B or so becoming a tailwind for FQ1 2016, it’d be slightly utterly embarrassing for Maestri to lose his conservative edge when Apple’s “built in” such a substantial revenue growth cushion for him to work with. Given all this, let’s go with $77B as a baseline, shall we?

“Deconstructing” a Hypothetical $77 Billion (Not Far From the Analyst Consensus)

Considering iPad’s overall downtrend as of late, the counter-balancing launch of the super-high-for-an-iPad-ASP iPad Pro, and the emergence of Apple Watch, this is gonna be “fun”. Where by “fun” I mean “even trickier than usual”. Still, let’s see where some assumptions take us.

Here’s the results from Apple’s truly epic, Watch-free Q1 2015:

REVENUES revs units “ASP”
iPhone $51.182B 74.468M 687
iPad $8.985B 21.419M 419
Mac $6.944B 5.519M 1258
Services $4.799B
Other Products $2.689B
Total revs $74.599B

What’s one potential path to $77B?

We’ll go category by category, ending with iPhone and the “time-honored” (no, not really, at all) humble take chart.

iPad – More of the Same?

Last 8 quarters of unit growth, chronological order (FQ1 2014-FQ4 2015), YOY basis (a.k.a. unit growth vs. the year-ago quarter):

14%, -16%, -8%, -13%, -18%, -23%, -18%, -20%

Lower channel inventory aside, yep, more negative growth. Here’s one thing of which I’m reasonably sure – whether Apple’s right or not, the company clearly doesn’t feel too much competitive pressure when it comes to iPad. How else do you explain Apple’s complete non-refresh of what was, until a few months ago, the flagship iPad (Air 2)? iPad mini 3 did add Apple Pay and Touch ID in 2014, even as the A7 stood pat. Cold-blooded business decision, but it was still a value add, an upgrade, just not as much of one compared to any prior iPad refresh. Meanwhile, iPad Air 2 is something akin to iPad 2, except without the price drop. Maybe at third-party retailers, but not over at the Mothership.

I’m not going to assume Apple ceding the “original iPad size” market to anyone, so the best I can do is “mental blender” an additional growth headwind against iPad’s relentless 7-quarter history of retrograde YOY unit growth, and my guess is it’ll officially be 8 straight quarters after next week’s scheduled earnings release. I doubt anyone, including Apple execs, expected that (same goes for the parabolic sales curve until around 2012 or so).

Of course, the tailwind is iPad Pro. It’s a “niche” product in the minds of many (including myself, since I always strive to be cautious in my home gamer dart tosses :P) but only until we get a better sense of the ASP mix. The A9X SoC is no joke, with one Phil Schiller slide giving notice to the world that Apple is deadly serious about A-chip big iron, which certainly seems powerful enough to someday run everything Apple offers, short of a workstation. With configurations at $799, $949 and $1099, it’ll certainly help iPad revenues…

…from sliding much further? I’ll get to that shortly.

With iPad Air 2 being utterly unchanged from late 2014, it seems unlikely iPad mini 4, iPad Pro and an iPad mini 2 price drop will be nearly enough to reverse this streak of YOY unit decline. So, “regardless” of the $77B revenue mix “limitation” for this post, I’m “projecting” a YOY unit decline of around 15%.

Could it be worse than 15% decline on account of iPad Air 2’s aging? Or better, to the extent iPad Pro is received in the marketplace as a PC, or even Mac, replacement? Tune in next week, I suppose.

iPad revenue decline, however…might not happen. It depends on iPad Pro unit mix, iPad Pro-specific revenue mix, with a side of ForEx pressures. One thing I think I can say with confidence, though, before moving on to Mac. iPad revenue trending, thanks to iPad Pro, will look much better than units. On the order of 10 percentage points or more, is my guess. If Apple sells “only” a million of ’em – and who knows if Apple will give any hints about that – more like 4-5%, perhaps.

Mac – Still Plugging Along

Last 8 quarters of unit growth:

19%, 5%, 13%, 21%, 14%, 10%, 9%, 3%

Whatever “plagues” iPad clearly isn’t affecting Mac much. And that most overpriced of pro/consumer computing products (if you completely, utterly ignore the long-term downtrend of PC prices in favor of some bizarre theory of price relativity) is maintaining a very healthy ASP of around $1200-ish, far higher than its full-line computing peers as far as I’m aware.

Time to put Mac out to pasture any moment now, right?

Sarcasm aside, an interesting question – over time – is whether iPad Pro will cut into the total addressable market for Mac, since iPad not-Pro has not to any discernible degree (overall PC market’s contracting, Mac is over 30 years old, etc.). Until we get a data point or two on that, let’s look at Apple’s FQ4 2015, which saw a very modest 3% YOY unit growth.

I can’t ignore that Apple ended the quarter below its 4-5 week channel inventory target range. But Apple has no need to be super-secret with Mac numbers (it’s “probably” just being conservative with channel inventory), so I’m guessing the sellthrough number (a.k.a. “true unit sales”) isn’t several percentage points higher.

So, did relatively stale product contribute to the reduced growth? Well, the refreshed iMacs hadn’t arrived between June to September. But, looking back around 190 days, the average age of Apple’s Mac vanguard – the MacBook/Air/Pro series – was around 90 (MacBook neo), 120 (Air), and 50 (15″ rMBP with Force Touch) to 110 (13″ rMBP) days in terms of new or speed-bumped/refreshed product. Mac mini and pro are both really old for Mac product, and also likely minor contributors to units and revenue until that changes.

Looking a bit closer, there’s only one truly new MacBook in the lineup – the first-gen 12″ MacBook retina, which itself is “due” for a refresh within the next 3 or so months as of now. The “fuzzy-screened” MacBook Air is a bit due for an overhaul (or retirement), and MacBook Pro (retina) hasn’t seen any real redesign (aside from a thinning of the 13″ edition plus a trick new Force Touch trackpad) since…well…mid-to-late 2012. Which, themselves, bear no small resemblance to their unibody, non-Retina counterparts from late…2008.

Throw in iPad Pro and external factors and Mac growth seems tough in the abstract this holiday quarter, since El Capitan is nice, but no growth driver type of OS. But then:

Gartner reports Mac with estimated 2.8% YOY unit growth (CQ4 2015 basis), worldwide, and IDC reports…a 2.8% YOY growth estimate. Notable when basically every other PC OEM is projected to suffer negative growth.

I’m more than happy to just go with their 2.8% number in a uncommon moment of these two firms reaching the exact same conclusion. And so I will. 😀

Services$20B/yr. Worth of Afterthought?

Last 8 quarters of revenue growth:

19%, 11%, 12%, 8%, 9%, 9%, 12%, 10%

App Store. Apple Music. iTunes Store. Mac App Store. AppleCare. Apple Pay. iCloud. “Licensing”. That probably accounts for the vast majority of the category’s revenues. And the category has been doing well for a long time now.

For now, I just keep it simple – probably too simple – and tie my “mental blender” thinking to the overall hardware device trends – heavily weighted towards iPhone, obviously. And that business is good. At least, it was. 😛

Stands to reason that as long as Apple’s growing hardware units year over year, growing the user base, there will be more demand for its services, from apps to internet services to extended warranties. I doubt a significant fraction of Services revenue derives from those who don’t own an iPhone, iPad OR Mac.

New-to-Apple users are especially helpful to growth as incremental, rather than “repeat”, service consumers. Though it’s obviously also helpful if the newbies and old guard alike subscribe to Apple Services (say, iCloud and Apple Music), to better stabilize and build upon this revenue base. 😉

Of course, the better does Apple does in enterprise over time, the more high-margin AppleCare support contracts it can obtain from MidsizeCos to BigCos, which IBM would be more than happy to assist with as Apple’s Preferred Enterprise Sales Partner.

Funny to observe how that which Steve Jobs long ago referred to as an “orifice” has become the front door and red carpet to some serious corporate IT budget dollars. Times change.

Apple Pay won’t register in any meaningful way…yet. (No pun intended, really). But UnionPay, with its claimed five billion issued cards (sure, many UnionPay customers hold multiple cards, but still…the scale is self-evident), combined with the inevitable growth of NFC pay + biometric payment in apps, plus Apple’s strong foothold in China, will help Apple in ways well beyond Apple Pay revenues. It’s no small selling point for iPhones and iPads and Watches when, in more and more cases, you can just add a bank card of choice and meaningfully change your flow of commerce. It sure as heck beats chip transactions.

Add in AppleCare buys for Watch, and I think 10% YOY category revenue growth seems pretty reasonable.

Other Products – As in, Watch Plus Other Products

Last 8 quarters of revenue growth:

-28%, -20%, -8%, 0%, -5%, -10%, 49%, 61%

I give up trying to figure out Beats. And iPod has been dragging “Other Products” down since the category was created.

Watch, however, is no small product, however “disappointing” it’s been cast by various pundits. That’s why the category suddenly experienced 49% and 61% YOY growth for FQ3 and FQ4 2015.

To me, the best way to look at Other Products (while it’s still possible) is to isolate Watch-free Other Products first. For FQ1 2015, the category brought in $2.689B in revenue – Apple Watch was still months from shipping. Since I had to put in some number, I just shrugged and guessed that Beats (clearly, Apple didn’t acquire the company for its headphone growth prospects) plus iPod will cause ex-Watch revenue to drop around 9%, even though the rest of “Accessories” could easily be seen growing year-on-year due to 2015’s strong iPhone gains. The iPhone 6/6S Smart Battery Case arrived too late in the December quarter to save the day. 😛

Maybe that’s a little too dour an outlook on ex-Watch Other Products. Who knows.

As to Watch itself? The theme seems to be “comparable-ish to iPad’s first year, but not quite as hot a seller”. Makes sense. Watch is an iPhone-dependent product. A post-PC device, but not (potentially) standalone the way iPad was. Just because there are many, many iPhone owners who can add Watch to their Apple equipment loadout doesn’t mean that all of them will suddenly start wearing a watch again. I haven’t bought a Watch yet either.

Does anyone really know Watch unit sales so far? Nope. We have “higher sales than iPhone and iPad in their first nine weeks of availability” (for FQ3, during which Other Products revenue increased YOY to $2.641B vs. $1.767B in FQ3 2014), and…no similar commentary for FQ4, where Other Products increased to $3.048B vs. $1.896B in the year-ago quarter. I have a pet theory that Apple is able to use a bit of cloud cover from accessories inventory drawdown (mostly to third party resellers, I guess) and/or iPod channel inventory (whatever little there needs to be these days) to reduce GAAP-reported ex-Watch Other Products and give Watch a bit more room to grow unnoticed.

But what does that mean, exactly? Is it “safe” to say that Watch revenue (which would include bands and related accessories) was “around $1B” for FQ3 2015 (launch quarter), or “around $1.2-$1.35B” for FQ4 2015? Who knows! And that’s before taking a deep breath and applying a Watch ASP assumption to get to units.

A quick refresher on iPad’s first three quarters of unit sales, which actually adds to the mystery of the Apple “Flop” Watch.

FQ3 2010: 3.29M

FQ4 2010: 4.19M

FQ1 2011: 7.33M

“Helpfully”, Apple launched iPad on April 3 (in stages, Wi-Fi first, 3G model on April 30), three weeks before Apple’s April 24 launch of Watch. Comparing April 3 – June 5, 2010 iPad unit sales to April 24 – June 26, 2015 Watch unit sales, given only the info that Watch unit sales were higher, doesn’t say all that much – by design. And linear extrapolation would be done at the pro/amateur analysts’ own peril.

All I can “conclude” is:

For FQ3 2015, Watch units may have been in the 2 million or so band (give or take a few hundred thousand). If you assume at least 1.645M iPads were sold in the first nine weeks post-launch, this seems a bit more wobbly Jenga puzzle than house of cards in gale-force winds.

For FQ4 2015, Watch units quite possibly slowed in terms of unit sales per week, but given the vagaries of product launches, burst sales, utterly uncertain demand curves, Apple/media hype, etc…well, let’s just be thankful we can kinda sorta assume Watch revenue increased sequentially.

For FQ1 2016, a guess that Watch has holiday-quarter seasonality somewhat akin to iPod and iPad seems as reasonable as any other. Read: Oh heck, I’ll close my eyes and wild-guess a seasonal spike in Watch sales, though for conservatism purposes, at a slower clip than iPad 1.

The ol’ mental blender’s making disconcerting clanking noises, but I did manage to eke out an “estimate” of 5.05M Watch units at a $550 ASP for FQ1 2016. We’ll be in the dark about “YOY growth” until (a) Apple decides to give more color on this nascent category, counter to its express desire to not tip off the competition (so, doubtful) and/or (b) Watch crosses the 10% of revenue threshold, and thus “must” become a reportable category.

And with “the other four” revenue categories covered, we end up with:

iPhoneThe Worst Best Thing to Ever Happen to Apple (No Seriously, Check the Stock Quote)

Last 8 quarters of unit growth:

7%, 17%, 13%, 16%, 46%, 40%, 35%, 22%***

***Remember, FQ4 2015’s numbers were heavily skewed by the “Missing iPhones” phenomenon, where perhaps 6M iPhones (maybe more, maybe less) were counted towards FQ1 2016, for a total of perhaps $4B in “deferred revenue” (maybe more, maybe less) on account of Apple selling iPhone with only two days to go in FQ4 2015, versus the “usual” nine days in the prior three FQ4s. I mentioned this near the end of my FQ4 2015 AAPL home game earnings preview, if you want more detail on how I arrived at those assumptions (link is wayyy up by the YouTube clip). If you added 5 million iPhones back to FQ4, the YOY unit growth rate would’ve been closer to 35%.

It’s true that gloomy/skeptical/bearish/whatever analysts/pundits/blogger/whoevers 😀 are already looking towards FQ2 2016. And you know what, I can’t blame them. FQ2 2015 saw (1) the first full quarter of iPhone 6/Plus availability (2) in China (3) on a modest-sized China celco with about 800 million subscribers (4) amidst a mega-gigantic connection shift from 3G to 4G smartphones (5) during a time interval spanning Chinese New Year. So, insofar as FQ2 2016 represents a “tough compare” to the extent that China had a truly outlier iPhone quarter, I understand. It is a tough compare.

But, um, last I checked, there’s still a lot of the following type of sentiment out there, which seems a little too dour:

And if Wall Street thinks iPhone units might grow 1-2% or so from FY 2015 to FY 2016, they’re really thinking all of fiscal 2015 was a “tough compare” (which they do). And, by necessary implication, the growth floor completely falls out from under the Greater China revenue geography:

Despite China Mobile having some…fairly decent 4G adds for the holiday quarter (spoiler alert: December 2015 4G adds set an all-time record):

“Well, you see, it’s all gonna come crashing down soon enough. Besides, iPhone 6S, 6S Plus, and cheaper iPhone 6 and 6 Plus are passé in China. Because…it’s just this feeling I have.

Did I mention iPhone is so very expensive in China?”

All right, enough “trolling”. We can address the Samsung/Xiaomi Theory of Smartphone Momentum later.

Here’s what you get when you force-fit iPhone with a fairly reasonable, ForEx-affected ASP guess to a $77B revenue mix. You may disagree strongly, and that’s fine. (YOY iPhone/iPad/Mac growth percentages in terms of units):

REVENUES revs units “ASP”
iPhone $50.872B 76.5M 665
iPad $8.669B 18.25M 475
Mac $6.952B 5.675M 1225
Services $5.28B
Other Products ~$5.23B (Watch rev horseshoe toss: $2.78B, 5.05M units) Watch ASP Wild Guess: 550
YOY iPhone 2.73%
YOY iPad -14.8%
Total revs $77.00B YOY Mac 2.83%
YOY Services 10.02%
YOY Other Products 94.4%

(-8.89% ex-Watch)

Might ASP be higher than $665? Sure, but Tim Cook also mentioned a 700 basis point revenue headwind on a constant currency basis when comparing to FQ1 2015. That’s powerfully negative. I’m not sure how much of that 700 points could be mitigated by Apple’s ongoing, industrial-strength currency hedging program (it does appear currency hedging is “considered” in the guidance), but it’s probably not most of it. There’s also the very distinct possibility that iPhone 6 and 6 Plus remain vibrant and popular as they become the n-1 and n-2 (i.e., one-year-old/two-year-old) iPhones. They’re far superior mid-premium tier offerings compared to the iPhone 5S. Higher “mid-range” iPhone mix could mean a second dampening effect on ASP.

Might ASP be considerably lower than $665? Well…who here thought iPhone ASP would be $670 for FQ4 2015, a quarter that had exactly two days of iPhone 6S/Plus sales? An ASP that was higher than FQ2 (~$659) and FQ3 2015 (~$660) amidst horrific ForEx headwinds? I rest my case. Also, lower ASP means a likelihood of higher iPhone units. Additionally, consider Apple’s September 2015 accounting change, which removes between $5-10 of revenue deferral for each iPhone (read: increases ASP).

Now that ASP’s been addressed, let’s look at the concept of around 2.7% holiday quarter iPhone unit growth.

I have to admit, management did a convincing job of moderating iPhone expectations. Or…did certain analysts overindex on a single sentence? Let’s begin with this understatement-of-the-century line from Tim Cook (hat tip TheStreet’s free!, no-signup! earnings transcript service):

“We believe that iPhone will grow in [FQ1 2016]…”

I should hope so, Tim. And as for China:

Also, if I zoom out and look at China, as I’ve said before, and just to make the point once again, is we see an enormous change in China over the next several years. The latest study I’ve seen from McKenzie indicates if you look back five years, China’s middle class had about 50 million people and it, if you look ahead five years, it will have 10 times that number in it. And I feel like we are reasonably well positioned in China, I’m sure we can do better, but I think we are doing fairly well there.

(Emphases mine.) Do CEOs of companies this large…troll? Is that a thing? Now, to be fair, Tim did drop what I interpret to be a fairly bullish hint (at least as to FY 2016 overall), when responding to the eternally dour Toni Sacconaghi of Sanford C. Bernstein (something having to do with China being a first-stage launch country for iPhone 6S/Plus vs. having to wait until mid-October 2014 for iPhone 6/Plus, advantaging FQ1 2016 at the expense of FQ2 2016):

And where I think we will do quite good in iPhone, I do believe we will grow this quarter as we put in our guidance, that when you start with the number in the low 30s in terms of the percentage of the install base that’s upgraded, that had a phone pre the iPhone 6 and 6 plus, that number is still likely to leave a lot of headroom beyond December.

(Emphasis mine.) That’s a “macro” upbeat signal if I ever saw one, and it’s a clear signal about the install base unit sales opportunity (later in the call, Tim Cook would actually say the percentage of install base yet to upgrade was 69%, to make his point that much clearer).

Since Greater China is Apple’s fastest growing revenue geography, to the point of surpassing Europe for the first and likely final time, here’s Tim Cook answering a China economy/iPhone question from Shannon Cross of Cross Research:

Yes, if you look at China, we grew from an iPhone point of view, Greater China we grew 87%, the market grew 4%. If you take iPhone out of the market number so the market ex- iPhone actually contracted slightly. So we have been able to grow without the market growing. iPhone 6 was the number one selling smartphone in mainland China last quarter and iPhone 6 plus was number three. So, we did fairly well.

The economic question, which I know there’s been a lots of attention on, frankly, if I were to shut off my web and shut off the TV and just look at how many customers are coming in our stores regardless of whether they are buying, how many people are coming online and in addition to looking at our sales trends, I would not know there was — there was any economic issue at all in China.

Sustainable megatrend or nitrous oxide boost from Fast and Furious. Within a country vitally important to Apple’s continued growth. Which do you believe? Or…should you believe?

As it so happens, 76.5M iPhones sold in FQ1 2016 – a number I independently mental-blended – exactly matches the Wall Street analyst consensus collected by Philip Elmer-Dewitt of Fortune Magazine. Two possible explanations spring to mind:

(1) You’d…think the pros accounted for the “Missing iPhones”, right? And that assuming channel inventory remains steady, they’re actually projecting an apples-to-apples iPhone unit decline in the neighborhood of 5% if those 6 or so million iPhones weren’t included?

(2) Or…maybe they’re assuming a major channel inventory drawdown? 13 weeks, 74.5M iPhones sold in FQ1 2015, adjust for possibly non-linear relationship of channel inventory to units sold per week…say, 1.5 weeks worth of drawdown vs. the year-ago quarter?

Well…according to Luca Maestri back in FQ1 2015, there was a YOY unit decline in iPhone channel inventory from FQ1 2014 to FQ2 2015 (-200,000 units), supply/demand balance wasn’t achieved until January 2015, and Apple ended up below the 5-7 week channel inventory target range on a look-forward basis (do note, Maestri does switch between look-forward and look-back from time to time if I remember correctly).

Huh…well, the channel was already starved as it was, I guess. And being conservative on channel inventory doesn’t mean you drain channel inventory to the point of straining your ability to supply product to the over-200,000 iPhone points of sale.

It’s safe to hold pros to a higher standard, so if I may be so bold – choose one concern, not both.

Wrapping up, iPhone estimates for FQ1, to my eyes, don’t reflect a fear-shift or anxiety-shift to FQ2 2016. Quite the contrary – the degree may be a tad lower vs. the upcoming March quarter, but Peak iPhone “concerns” are very much present in the December quarter Wall Street consensus.

Being as objective as I possibly can – I can’t help but think these iPhone concerns are overblown for the to-be-reported quarter, and a bit beyond.


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