It’s been rumored for months that Apple Inc. (NASDAQ:AAPL) was working on a low cost iPhone, perhaps even one made out of plastic. Now analysts at Societe Generale point to the company’s latest channel inventory changes as being an indicator that a low cost model is indeed coming in the very near future, as so many believe.
Apple cut its channel inventory
One of the things investors and analysts were especially worried about in Apple Inc. (NASDAQ:AAPL)’s latest results released this week was the falling average selling price of the iPhone. Management pointed to aggressive iPhone 4 pricing as being one of the key drivers for demand during the June quarter. The result though, was an average selling price that dipped below $600 for the first time.
Yarra Square Partners returned 19.5% net in 2020, outperforming its benchmark, the S&P 500, which returned 18.4% throughout the year. According to a copy of the firm's fourth-quarter and full-year letter to investors, which ValueWalk has been able to review, 2020 was a year of two halves for the investment manager. Q1 2021 hedge fund Read More
The levels of channel inventory had been noted by several analysts going into this week’s results as concerns were raised about what all of that inventory means and whether Apple Inc. (NASDAQ:AAPL) was able to move it. Now after the release of those results, Societe Generale analysts Andy Perkins and Peter Knox and specialist sales expert Surendran Panicker say there’s only one reason Apple Inc. (NASDAQ:AAPL) would continue focusing on reducing its channel inventory. They said that since the older models are selling so well, the company really wouldn’t need to focus so much on cutting that inventory so quickly unless there will be another low cost handset very soon.
Other takeaways from Apple’s results
The analysts also noted a few other major things about Apple Inc. (NASDAQ:AAPL)’s June quarter results. They said it wasn’t a big surprise that the company’s guidance for the December quarter remained cautious with expected sales ranging from $34 billion to $37 billion. Also the mid-range earnings per share was set at $7.35 per share.
During the June quarter, Apple Inc. (NASDAQ:AAPL) was able to generate $7.8 billion in cash and still has more than $117 billion on its balance sheet in spite of returning about $19 billion to shareholders. In addition the company’s performance in places like the U.S., Japan and the U.K. was still good, although sales were weak in China, falling 14 percent.
They believe the majority of Apple Inc. (NASDAQ:AAPL)’s problems in China can be explained through adjustments to inventories and weakness in Hong Kong rather than in mainland China. They believe, like many other analysts, that Apple Inc. (NASDAQ:AAPL)’s next products, including the next iPhone, will be announced by the end of September.
They reiterated their $500 per share price target and Buy rating on the stock.