Sternee Agee analyst Shaw Wu remained upbeat on Apple’s after checking the company’s suppliers. Wu maintained its $840 price target and raised its gross margin estimate for Apple Inc. (NASDAQ:AAPL) to 40.5 percent compared with the company’s 38.5 percent outlook.
In a research note to investors, Wu said, “Despite near-term gross margin concerns, our fundamental view remains upbeat, as we believe iPhone 5 and iPad Mini will drive the industry’s most powerful product cycle.
According to Wu, based on his supply chain check, the volume for the iPhone is better than the 25 million to 26 million units consensus estimate. Wu said the suppliers indicated high demand trends, despite concerns on the Apple maps application. He also cited that the production capacity improved quantity of in-cell touch screens.
On the other hand, Wu said the consensus estimate for the iPad is high at 17 million to 18 million units. According to him, the supply chain indicated lower production plan ahead of iPad mini and possible iPad refresh with an 8-pin lightning connector. He noted that Sternee Agee’s December quarter estimate is low. He raised his estimate to 25.5 million units for the iPad Mini. He believes Apple Inc. (NASDAQ:AAPL)’s Mac volume is approximately 4.8 million units.
Wu also cited in his report that the near-term gross margin volume for Apple Inc. (NASDAQ:AAPL) would be lower. He identified two issues that could affect the result, including Apple’s temporary absorption of the increasing manufacturing cost of the iPhone 5, and possible lower gross margin profit of the iPad Mini, which will be launched in an event in San Jose, on Tuesday.
Meanwhile, Bernstein Research analyst Toni Sacconaghi maintained its “outperform” on Apple Inc. (NASDAQ:AAPL) Stock with an $800 price target.
In a note to investors, Sacconaghi wrote, “We forecast iPhone unit sales of 24.0M, down from our previous estimate of 28.1M, largely due to constrained availability of iPhone 5s, and an assumption that channel inventory will decline 3M+ from last quarter’s level of 8.3M.”
He expected that the demand for the iPhone 5 based on the first day orders is largely in-line to modestly weaker than the expectations based on previous iPhone launches. According to him, the shipments for the products have been notably weaker, due to in-cell display limitations.
In addition, Sacconaghi said, “Our analysis of Verizon’s iPhone sales in the quarter 2 points to an estimated 26 – 28M phones on a sell-out basis. Interestingly, Verizon Communications Inc. (NYSE:VZ) stated that it has “zero” iPhone5 channel inventory, pointing to a potentially significant drop in iPhone channel inventory sequentially.”
His gross margin guidance for Apple Inc. (NASDAQ:AAPL) is conservative based on the impact of the iPad Mini, increasing costs of NAND, and a full quarter impact of the lower-margin iPhone 5. He also noted that Apple Inc. (NASDAQ:AAPL)’s guidance was historically below actual revenue and EPS over the previous 10 quarters at 17 percent and 39 percent respectively.
Sacconaghi said, “Bottom line, expectations for this year may be too high, but investors should go long, as this week’s outlook may favorably reset expectations… We continue to recommend investors remain overweight, due to the attractive valuation.”