Apple Inc. (AAPL) iPhone 5s, iPad Air Demand Strong: Canaccord

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Apple Inc. (AAPL) iPhone 5s, iPad Air Demand Strong: Canaccord

Michael Walkley, Matthew D. Ramsay, and Siddharth Sinha of Canaccord Genuity on Apple Inc. (NASDAQ:AAPL) iPhone 5 and iPad Air sales.

Our October/November U.S. carrier and global surveys indicated very strong iPhone 5s sales with improving levels of supply, steady iPhone 5c sales, and very strong initial sales of the new iPad Air.

However, our global supply chain analysis and surveys post the Apple Inc. (NASDAQ:AAPL) iPad mini with retina display launch on November 12 indicated the new iPad mini is supply constrained and is expected to remain so throughout the December quarter.

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Given these trends, we anticipate a more favorable Dec Q iPhone/iPad mix for Apple towards the higher-ASP iPhone 5s and iPad Air versus iPhone 5c and iPad mini. For F2014/15, we believe a TD-LTE iPhone launch with the world’s largest carrier China Mobile could bolster March quarter sales and offset some of the post-holiday seasonal trends in western markets.

We also believe the continued large share buyback program should contribute to a return to EPS growth in F2014/15. We reiterate our BUY rating and $580 PT.

Apple Inc. (NASDAQ:AAPL): Investment highlights

Our Oct./Nov. surveys indicated strong iPhone 5s sales, as it was by far the top selling smartphone globally and at all four tier-1 U.S. carriers. Further, while the Gold iPhone 5s SKU was still supply constrained with long wait times, the other iPhone 5s SKUs showed marked improved availability versus last month. Please see our industry report published today, titled “Q3/13 handset market summary and Oct./Nov. survey: Apple poised for Q4/13 smartphone and tablet share gains; introducing 2015 global handset estimates” for details. Given these trends, we slightly increase our Q4/F’14 iPhone unit estimates and ASPs from 51.5M/$620 to 52M/$624 due to stronger iPhone 5s sales versus the iPhone 5c.

Our November surveys also indicated very strong initial iPad Air sales. However, our global supply chain analysis and surveys indicate the iPad mini with retina display, launched Nov. 12, is supply constrained and could remain so throughout Q1/F’14. Given these trends, we change our Q1/F’14 iPad/iPad mini unit estimates and blended iPad ASPs slightly from 12.8M/11.5M/$454 units to 13.5M/11.2M/$465.

Primarily due to these changes, we raise our F2014 and F2015 EPS estimates for Apple Inc. (NASDAQ:AAPL) from $42.75/$48.23 to $43.48/$48.78.

Valuation: Our Apple Inc. (NASDAQ:AAPL) $580 price target is based on shares trading at roughly 12x our F2015 EPS estimate.

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