Wells Fargo Doesn't See Peak iPhone Sales (AAPL); Numbers Trimmed
Wells Fargo analyst Maynard Um lowered his March quarter estimates and its valuation range on Apple (NASDAQ: AAPL) to $120-$130 from $125-$135 to err on the side of conservatism following reports the company is cutting iPhone 6S/6S+ build plans for the March quarter and many have pointed to lower 6S/6S+ demand at carriers versus the 6/6+.
Um believe the latter should not be surprising as history has shown that S-cycles typically have lower units per carrier than non-S cycles. The analyst also believes unit strength could come from lower end models and note that in the 5S cycle, Apple saw strength from the 4S due to strategic actions in various markets. They expect the addback of $5-$10 per device, the Ericsson IP deal, and potential other balance sheet actions could result in stronger gross margins (shifting the story for the time being to a margin story).
Um lowered FY2016E EPS to $9.60 from $9.66 but raised December 2016E EPS to $3.52 from $3.33 and FY2017E to $10 from $9.76.
He said it is likely not the peak for iPhone units. "While there is potential for March quarter iPhone units to decline yr/yr, we believe iPhone units have not peaked and expect December 2016 iPhone (iPhone 7 cycle) shipments to be higher yr/yr," he said.
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Shares of Apple closed at $102.71 yesterday.