Apple Inc. (NASDAQ:AAPL) shares are having a good day after the company announced earnings yesterday which impressed investors and analysts. Shares regained the $100 mark and are now up a strong 7.5 percent to $97 or so a share at the time of this writing. So what was the good news for the tech giant? Some analysts noted gross margins, others iphone sales, others iPADS, growth in emerging markets, among other reasons. Below we offer a sampling of what analysts are saying about the numbers.
AAPL – analysts react
Jul–Sep guidance: The revenue guidance range is $45.5bn to $47.5bn (+10% QoQ and ?10% YoY at the midpoint; Bloomberg consensus $45.6bn), and the gross margin target range is 37.5% to 38.0% (flat to down 0.5ppt QoQ, down 1.9ppt to 2.4ppt YoY; Bloomberg consensus 38.4%). Declining iPhone channel inventory in Apr–Jun, together with the outlook for iPhone retail pricing to improve following earlier falls, leads management to forecast QoQ revenue growth for Jul–Sep. Apple sees firm sales in some regions, including Japan, Russia, and Brazil. Despite projected top-line growth and an improved product mix, it expects product transition costs to depress the gross margin. Commenting on sourcing, management said that although NAND supply and demand are balanced, it expects price falls for DRAM and LCD as both are in oversupply.
While the June quarter is viewed as “lame duck” given the new iPhone comes out in September, it did reveal several key positives: (1) Apple reduced channel inventory by $3.6bn, above its $2bn expectation, suggesting even more upside on a sell-through basis. Indeed, while iPhone units were down 15% yoy on a sell-in basis (as reported), they were only down 8% on a sell through basis. (2) Gross margins of 38.0% were above consensus at 37.9% and guidance was also better than feared, as the iPhone SE has only a “slightly dilutive” impact on gross margins; note that margins have been a key focus for the bears. (3) Services were up an impressive 19% yoy, the fifth consecutive double digit growth quarter, with the App Store up 37%, accelerating for the fourth consecutive quarter. (4) iPad revenues grew for the first time in 10 quarters on the recent Pro launch.
Apple reported better sell-through iPhone units than we expected but aggressively reduced inventory levels – particularly in China. The iPhone SE appears to be performing well and the iOS platform continues to add smartphone users. However, now lower iPhone ASP levels and an increased Y/Y drop in iPhone revenue to 23% in FQ3 both continue to underscore the macro-driven demand weakness embedded in our cautious CH2 forecasts. We expect a better 2017 but the road in late 2016 could continue to be bumpy.
More upside likely given growth in the iOS subscriber base. Apple Inc. (NASDAQ:AAPL) believes iPhone demand will be down ~5% YoY in F4Q; its implied sell in guidance is similarly down ~5% YoY. Apple noted its iOS subscriber base is up ‘strong double digits’ – our work triangulates that to ~15%. The growing base and likely improvement in replacement rates (from record lows in 1H in the US) should drive volume growth in FY17; we model 8% to 230mn. We lift our FY17 EPS estimate from $8.74 to $9.10.
Both iPhone and iPad units were ahead of consensus for the June quarter, even though units were down 15% y/y for the iPhone and down 9% y/y for the iPad. The slightly better results point to iPhones, where unit shipments came in at 40.399mu, as compared to consensus of 40.02mu (down 35% q/q and down 15% y/y), reflecting strong demand and resiliency in the iPhone line-up, with demand for the iPhone SE (4-inch) outstripping supply throughout the quarter. Equally, sell-through was greater than sell-in, where it was noted that a majority of the reduced channel inventory came from iPhones (total channel inventory was reduced by $3.6bn, vs. $2bn+ expected). iPhone channel inventory was reduced by over 4mu, exiting the quarter near the low-end of the 5-7 week target range. The company also saw an increase in first time buyers and switchers accounted for the highest % of quarterly iPhone sales. The active installed base was also positive, up double digits y/y. Challenges have surfaced however in China (installed base up 35% ttm), given macro concerns and the depreciation of the Chinese Yuan. India is a market that is now demonstrating significant growth, where iPhone sales were up 51% y/y, indicating good potential for this region.
AAPL reacted positively to a modest beat and raise as investors gained comfort that FTM estimates aren’t heading any lower. iPhone units came in at 40.4M (while AAPL lowered 4M of channel inventory) and their guide implies iPhone units improving by ~10% q/q to ~44-45M range for Sept-qtr. Furthermore, the significant ASP drop in Juneqtr (~$65 y/y) should also improve as we move forward into Sept-qtr with new product launches. Finally, we think gross-margins being stable/ahead of expectations despite a higher iPhone SE mix was incrementally positive for investors. Maintain OP and $115 target as we think the stock works higher given a confluence of iPhone 7 upgrade cycle and easier compares.
Apple’s Inc. (NASDAQ:AAPL) results were roughly in line but showed surprising iPhone strength at units of 40mn (44mn sell-thru), and the Sep quarter outlook was better than expected—even if there is an earlier Sep iPhone announcement that helps compares, the results still will be decent. There has been concern that the company was losing understanding and control of the iPhone cycle. Our sense is that Cook has a good handle on demand, which should give investors more confidence. For example, last quarter’s comment predicting better iPad results proved correct. Also note his emphasis on providing a “seamless experience.” A broader product line that dominates consumer mindshare (iOS everywhere) would address the fragility that we think limits the multiple.
On the positive side, iPad sales grew for the first time in 10 quarters on strong demand from enterprise customers for the new iPad Pro. Services sales also saw good growth again this Q, up 19% Y/Y, driven by App Store sales growth of 37% Y/Y, which accelerated 2ppts Q/Q. Apple also highlighted a 4M channel reductions of iPhones in the Q, which suggests iPhone demand was higher than the 40M shipment the company reported. On the negative side, all of AAPL’s hardware segments declined again this Q, including iPhone (-15% Y/Y), iPad (-9% Y/Y) and Mac (-11% Y/Y). In addition, the launch of the lower priced iPhone SE contributed to a $65 Y/Y and $47 Q/Q drag on iPhone ASPs. China also saw sales decline again this Q, with revenue down 33% Y/Y, and Apple’s Rest of Asia sales fell by 20% Y/Y, underperforming developed markets.
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