As Apple rebounds from its first earnings call predicated with a guidance revision in 16 years, many analysts remain skeptical of the company’s ability to regain its trillion-dollar status. Morgan Stanley analyst Katy Huberty, however, offers a different take, via CNBC.
As if Apple’s management wasn’t under enough pressure from the stock falling below $100 yesterday, two firms of analysts have said that the company was either over-optimistic in its iPhone sales expectations or has even been guilty of “deliberately overstating underlying trends.”
Business Insider quotes excerpts from investor notes from Pacific Crest and UBS, each suggesting that Apple has over-estimated iPhone demand. Both point to apparent contradictions between Apple’s predictions of continued growth and supply-chain reports of reduced orders.
UBS says that it believes Apple has been taken by surprise with the relatively low numbers of people upgrading from older iPhones.
We think the most likely reason for a shortfall is that the upgrader portion of unit demand has stalled significantly in recent months and is failing to meet Apple’s own expectations.
The note from Pacific Crest goes much further.
Management’s confidence now looks highly likely to be misplaced, which suggests that it was either ignorant of the challenges it faced or deliberately overstating underlying trends. The former seems unlikely, which suggests that management has taken a much more aggressive tone as growth in the high-end smartphone market has slowed. This reduces our confidence in Apple’s commentary going forward.
Business Insider notes that the Wall Street consensus is for significant year-on-year fall in the current quarter, ranging from Stifel, Aaron Rakers and team forecasting an 8% drop in sales through to Pacific Crest at 18%. Even noted Apple bull Katy Huberty at Morgan Stanley is predicting a 15% fall this quarter.
As we noted earlier, Apple’s guidance for the current quarter will be issued when it reports its holiday quarter numbers on January 26th.
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Update: Fortune reports that in a conference call, Huberty said her forecast was in part based on an estimated 10% drop in component orders. She noted that this could be due to robust inventories rather than weak demand, and that the numbers in the note were a ‘worst-case’ scenario. Huberty emphasized that she remains upbeat on Apple, citing a strong brand, loyal customers, R&D investment and other revenue streams compensating for weaker predicted iPhone sales.
[tweet https://twitter.com/philiped/status/676410189852078080 align=’center’]
The brand is strong. Customers are loyal. Gross margins are stable. R&D is going full tilt. And revenue streams from new products (Watch, Apple TV), apps, and media could start to make up for slowing iPhone growth.
An investment note by Morgan Stanley Katy Huberty predicts that Apple will see its iPhone sales fall by 5.7% in Apple’s 2016 financial year, reports Business Insider. The prediction is significant for two reasons: if realised, it would be the first time since the launch of the iPhone that sales have fallen year-on-year – and the forecast is made by a noted Apple bull.
Morgan Stanley thinks that Financial Year 2016 iPhones sales will be 218 million – a 5.7% drop — while Calendar Year 2016 sales will be 224,000 — a 2.9% drop. These predictions are significantly below Huberty’s previous estimates, of 247 million for FY2016 and 252 CY2016.
One of the reasons given isn’t new – high smartphone penetration in developed markets – but Huberty says there is a second reason …
While most analysts are expecting Apple to comfortably beat its holiday quarter guidance of $75.5-$77.5B, one large firm of analysts goes much further.
An investment note by Morgan Stanley seen by Business Insider says that an analysis of Apple’s financial report suggests that the company could be gearing up for quarterly sales totalling as much as $84.4B.
The clue, claims the company, is the company’s off balance-sheet spending commitments.
Apple’s last quarterly report revealed $29.5 billion in off balance-sheet commitments, and $7.3 billion in other commitments, at the end of the September quarter.
These usually represent money that Apple is planning to spend on parts and manufacturing equipment.
It should be noted that although Apple has recently been beating its own guidance of late, this has typically been by just a few percent – nothing like the leap Morgan Stanley is suggesting. While Steve Jobs used to give extremely conservative guidance, seemingly enjoying blowing expectations out of the water, Tim Cook promised more accurate guidance under his leadership and has more-or-less been delivering on that.
It also wouldn’t be the first time the analysts have made big leaps on little data. We’re going to file this one in the skeptical pile.
Following Bank of America Merrill Lynch yesterday giving six reasons for downgrading AAPL stock, Morgan Stanley has responded today with four reasons it continues to rate the stock a Buy, reports Business Insider.
In a note to clients on Thursday, Morgan Stanley’s Katy Huberty maintained an “Overweight” rating and $155 price target on the stock, arguing that the company will not see a similar stock meltdown to what was experienced after a huge run-up in 2012.
While acknowledging that supply may be catching up with demand, leading to supply chain reports of seemingly weaker sales, Huberty says there are four reasons the stock is likely to climb.
- Gross margins are improving, not deteriorating, as the company heads into the next iPhone cycle.
- There’s low institutional ownership of the stock.
- Apple has a more competitive product line-up and a “stickier” ecosystem against Android.
- There’s a more robust product and services roadmap.
Addressing concerns about the impact the weak Chinese economy may have on Apple, Huberty says that smartphones costing more than $300 each have been increasing their market share, meaning that Apple is well placed to continue to grow its business in the country.
A Credit Suisse survey of iPhone 6/Plus owners found that 18% of them would ‘definitely’ buy an Apple Watch, with a further 11% saying they would probably buy the upcoming smartwatch, reports Business Insider.
A general rule of thumb when interpreting purchase intention claims is to count only those who say they will ‘definitely’ buy (some of them won’t, but that’s balanced out by the fact that some of the ‘probably’ and ‘maybe’ categories will). That would suggest around 35M sales in the first year …
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A report by Taiwan’s United Daily News claims that Apple supplier Quanta will begin mass-production of the Apple Watch in January, echoing an earlier supply-chain rumor from September. It claims that the initial production run will be between three and five million units.
The report says that there have been ‘breakthroughs’ in yield issues, and that the company increased its production staffing from 3000 to 10,000 workers in the second half of the year, with further recruitment ongoing …
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Morgan Stanley’s Katy Huberty has added AAPL to its Best Ideas list of investments, saying that increased margins from iPhone 6 sales see the stock “set for significant upside.”
While Credit Suisse had earlier suggested that margins on the iPhone 6 would be lower than that of the iPhone 5s and 5c, Huberty says that numerous sources are suggesting that more people this time are opting for the middle storage tier, thus pushing up both average selling price and margins …
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Morgan Stanley analyst Katy Huberty is advising investors that now is the time to buy AAPL shares – and not just because the iPhone 6 is on the way.
Huberty gives eight reasons (via BusinessInsider) for believing that the price of AAPL stock is likely to increase. None of them are new, but the combined effect is persuasive, she argues …
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Apple and Samsung will largely own the smartwatch market between them, predicts Jackdaw Research chief analyst Jan Dawson in a report being issued later today and seen by Re/code.
Dawson said that new players should “stay out of the market,” and existing players should scale back their plans.
“We do not recommend that existing vendors should maintain current levels of investment when market growth and the overall revenue opportunity remain poor,” Dawson said. “It is unlikely that more than one or two small vendors will be able to make a sustainable business out of smartwatches in the face of competition from Samsung and […] Apple” …
Morgan Stanley’s Katy Huberty says that an analysis of Apple’s recent SEC filing strongly suggests that the company has not only made a big bet on the success of the iPhone 6, with large advance orders, but also that it is likely to launch the long-awaited iWatch this quarter.
The graph, obtained by Business Insider, shows the historical correlation between off-balance sheet commitments – the technical financial term for money invested in things like tooling, component purchases and manufacturing contracts – and quarterly revenue. Essentially, if you know how much Apple is investing in new products in one quarter, you can pretty accurately predict its revenue in the following quarter …
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While Wall Street may have been slightly disappointed by some of the numbers Apple reported yesterday, they should feel reassured by Apple stabilising and growing its gross margins, say Apple bulls – analysts who expect the stock price to rise.
Business Insider noted the above chart tweeted by Benedict Evans with the commentary:
Very stable long-term gross margins. Painful contrast to rest of the industry …
A patent application filed by Apple three years ago and approved today illustrates a new twist on the iWatch concept: a sensor-packed strap acting as a dock which allows a range of interchangeable modules to be snapped into place.
It’s not anything we’re likely to see make it into production: the docking concept dates back to 2011, and was probably intended by Apple to house an iPod Nano, converting it into a smartwatch in a more sophisticated version of the watch-straps sold in Apple Stores since way back in 2010. But the patent does tell us two things …
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Morgan Stanley’s Katy Huberty is predicting that the iWatch could achieve sales of 30-60 million units in its first year as sales growth mimics that of the iPhone or iPad, reports Fortune.
While some analysts point to modest sales of existing smartwatches as evidence that the iWatch is likely to be a relatively minor new category for Apple, Huberty believes that they are using the wrong measure.
It’s that loyalty and the so-called “halo effect,” Huberty writes, not the current watch market, that will drive sales of the unannounced product that she (like everybody else) is calling the iWatch …
Apple’s presumed plans for an on-demand music service as part of its Beats acquisition is looking increasingly well-timed as Nielsen data shows that U.S. on-demand music consumption climbed 50.1 percent year-on-year, while music downloads fell by 12 percent in the same timeframe.
“With On-Demand streams surpassing 70 billion songs in the first six months of 2014, streaming continues to be an increasingly significant portion of the music industry,” says David Bakula, SVP Nielsen Entertainment …
Declining iTunes sales highlighted by Morgan Stanley’s Katy Huberty and reported by Fortune appear to underline the need for Apple to move beyond sales of music downloads and into the subscription music business. iTunes sales are down 24 percent year-on-year.
While the slack is being picked up by app sales – a trend previously noted by Asymco’s Horace Dediu – that falling blue line reflects the wider shift in consumer behaviour from purchasing downloads to subscribing to streaming services noted last year by Billboard magazine …
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Fortune has its usual roundup of what the analysts are expecting Apple to report in iPhone sales next week, and the forecasts make worrying reading. The overall average is for quarterly sales of 38.2 million, which would represent year-on-year growth of just two percent.
Adding to the concern, ten of the 32 analysts included in Fortune‘s poll predict a fall in sales when compared to the same quarter last year.
With the new iPhones having generated record sales in their opening weekend, and Apple having reported all-time quarterly high iPhone sales in Q1, the question is why the pessimism regarding Q2 … ?
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China Mobile announced that it sold 1.34M 4G handsets in February and that “most of them” were iPhones. China Mobile chairman Xi Guohua was relatively non-committal on the numbers.
It’s just been getting started for one or two months. So far it’s hard to tell how that will affect our business […]
We are happy with the progress as we are still building our 4G network and the coverage is only available in some major cities.
Analyst estimates of likely sales had varied widely. Most had predicted at least 15-17M sales a year in China as a whole, however, suggesting that 1M in a month on what is by far the country’s largest carrier may be somewhat lower than anticipated …
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Predictions of disappointing Q2 iPhone sales could be unduly pessimistic, says Morgan Stanley’s Katy Huberty. She expects Apple to announce that it shipped 42M iPhones in the first quarter of the year (Apple’s fiscal Q2), rather than the 38M suggested by supply chain analysis, reports Business Insider. This would represent year-on-year growth of more than 4.5M handsets.
Huberty says that the supply chain may work in overdrive during the holiday quarter to generate extra product, and then ease back in the March quarter, thus giving an unreliable read out on sales.
Huberty bases her estimate on a method which sounds eccentric but has an excellent track-record …
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Photo: Business Insider
If you based your assessment of Apple’s future prospects on analyst reports and polls, you’d be upping your medication today while reading three separate sets of numbers.
Fortune reports that Apple tops the ‘most admired companies‘ list for the seventh time in a row, with Amazon and Google the runners-up. The charts are based on polling directors, executives and analysts in the USA’s largest companies.
The same source cites a Morgan Stanley investment note showing that the 30 largest institutional investors, who between them hold at least 30 percent of the shares on the market, have been selling AAPL, with their holdings at a record low …
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Tables compiled by Whale Wisdom from SEC filings show which hedge funds bought AAPL shares last quarter and which ones sold (via Fortune).
The numbers show that 1,010 funds bought AAPL stock, while 847 sold. Morgan Stanley led the bulls – those buying – with purchases of 1.36M shares. As Fortune observes, this is no surprise given Katy Huberty’s target price of $630 (against a current price of $546 at the time of writing).
Market analyst Canalys reports that 1.6M fitness bands and smartwatches combined were sold in the second half of last year, and is predicting that more than 17M devices will be sold this year, driven largely by forecast sales of 8M smartwatches.
Though currently a relatively small market serving fitness enthusiasts, wearable bands represent a massive opportunity in the medical and wellness segment. 2014 will be the year that wearables become a key consumer technology, as the smart band segment is estimated to reach 8 million annual shipments. Canalys estimates that this number will grow to over 23 million units by 2015, and over 45 million by 2017 …
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iWatch concept: Espen Oxholm
Estimating the revenue value of a product whose price is unknown and whose existence hasn’t even been confirmed is probably about as tenuous as it gets, but Morgan Stanley analyst Katy Huberty reckons that the iWatch could generate $17.5 billion in the first twelve months.
To put that into perspective, the iPhone generated $2.5B and the iPad $12B in their respective first 12 months of sales …
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Total revenue from all Android tablets combined has for the first time exceeded Apple’s revenue for its iPad sales, according to IDC data crunched by Morgan Stanley’s Katy Huberty.
“For the first time,” she wrote in a note to clients Friday, “Android devices accounted for a greater share of the market in revenue terms than iOS. Android revenue share reached 46.2% in 3Q13, for the first time exceeding iPad share of 45.6%. Android’s unit share grew to 66.7% from 58.5% a year ago, largely driven by Samsung and Lenovo, while iPad share declined to 29.7% from 40.2%” …
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