Apple (AAPL) Near-Term iPhone Expectations Too High, But iPad Much Stronger - Analyst

May 15, 2012 9:53 AM EDT
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Sterne Agee's Shaw Wu said checks with suppliers indicated near-term iPhone expectations are likely too high for Apple (NASDAQ: AAPL), although this is being offset by iPad strength.

Build plans for the current iPhones have been reduced significantly, according to Wu. "We are hearing a magnitude of down 20%-25% Q/Q from 35.1 million units in the March quarter," he said. This would suggest potential shipments of 26-28 million which is below consensus closer to 30-31 million.

This is not all that big of a surprise, Wu said, noting ahead of last year's iPhone 4S refresh, Street estimates of 20 million units (some as high as 23 milliob) were significantly off from actual shipments of 17 million.

"From our understanding, the reason for the reduction is not demand related but rather due to the upcoming 6th generation iPhone refresh likely in the September-October timeframe."

On the iPad, Wu is hearing that build plans have increased. "As we have mentioned before (see our 04/11/12 note), what held back shipments were supply constraints on its new HD retina display. We hear this has been greatly improved with an additional supplier. We believe this will enable AAPL to be better equipped to meet strong demand and deliver upside relative to consensus expectations."

All in, Wu is reducing iPhone forecast to 27 million from 28 million, raising iPad to 15 million from 14 million. He is raising gross margin assumption to 43.5% from 42.5% on improved iPad profitability and favorable component pricing. He now sees Q3 revenues of $36.1 million and EPS of $10.16, versus $36.1 billion and $9.86. For FY12 he sees $159 billion and $46.75 in EPS from $158 billion and $46.00 in EPS, and for FY13 he sees $189 billion and $53.50 in EPS from $187 billion and $53.00 in EPS.

Wu is maintaining his Buy rating and $780 price target on the stock.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $558.22 yesterday.

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