The first iPhone 6S devices will be landing in the hands of consumers on Friday, and analysts are all over the place with their unit estimates thus far. Some think estimates are just too high, while others think they are too conservative. But we’ll have to wait until Apple releases its next earnings report before we get any kind of an idea on iPhone units, and even then, that report will only include preorders and less than a week’s worth of the new lineup’s actual availability.
But is Apple too dependent on the iPhone? This is a debate that is raised frequently, and it most recently surfaced again when it started to look like the Apple Watch isn’t doing very well. However, bulls offer no end of potential opportunities for the Wall Street darling, with reports this week focusing on the persistent Apple car rumor and the Internet of Things.
How is iPhone 6S demand?
Perhaps the main focus on Apple right now is demand for the iPhone 6S lineup. Some think it’s weak compared to last year’s demand, while others think it’s very strong compared to previous years. Goldman Sachs analyst Simona Jankowski and her team think Wall Street expectations for demand are just too low. She sees the potential for Apple shares to move higher on higher than expected units and average selling prices, not just for the iPhone 6S lineup but also for the newest iPads, which includes the bigger iPad Pro.
She noted that right now much of Wall Street is expecting iPhone revenues for fiscal 2016 to be flat with last year. The reason for this is an exceptionally tough comparison with last year’s iPhone numbers. Apple recorded a 51% year over year increase in last year’s iPhone 6 cycle. She is expecting a 6% increase in iPhone revenue in fiscal 2016 because she sees the potential for strength based solely on upgrades alone, even if Apple sees gross adds fall.
In particular, she likes Apple’s new installment and leasing plans.
High purchase intentions for Apple products
Jankowski reports that their consumer survey suggests high purchase intentions for the iPhone 6S lineup this year, which backs up surveys by some other firms but runs counter to others. Among the questions the Goldman Sachs team asked was which products consumers intend to buy for the holidays, and surprisingly, the iPad was at the top of the heap, and other Apple products weren’t far behind.
This is a huge win for Apple, as iPad sales have been lagging in recent years. The company aims to boost sales of the tablet by releasing the larger iPad Pro, and if Goldman’s survey is correct, the plan might be working. Indeed, Jankowski believes that it will work, as she expects iPad unit growth to stabilize and help Apple start to move back up toward its previous 16% share of the PC and tablet combined market:
Why consumers plan to buy an iPhone
Looking specifically at the iPhone, Goldman Sachs found that most of those planning to buy an iPhone this year are upgrading from a previous model. However, they also learned that 70% of those surveyed aren’t planning on buying one:
Nonetheless, they still see room for upside to iPhone estimates.
Apple still going strong in China
The Goldman Sachs team also sees signs of continuing strength in China, as management has emphasized recently while the world worries about business there. They noted that the iPhone 6S launch came earlier this year than the iPhone 6 launch last year did in China. The iPhone 6S becomes available in China on Sept. 25, compared to Oct. 17 for the iPhone 6 last year.
They said Apple’s share of the smartphone market is rising, along with revenues in Greater China, as Apple continues to expand its retail presence there:
They say Chinese Millennials (those born between the early 1980s and early 2000s) are countering the headwinds from the macroeconomic environment in China, as a recent Goldman survey on China indicated that Chinese Millennials spend disproportionately on smartphones, fashion accessories and ravel. The survey indicated that Millennials in China upgrade their smartphones every one to two years and spend up to 30 hours per week on their devices.
Further, it indicated that Millennials see the quality of their smartphone as a “badge of belonging and necessary for keeping up with trends.” Because Millennials are about 31% of China’s population or about 415 million, they represent a formidable force in the market.
Apple Watch may be a sleeper item
Millennials also play an important role in the rest of the world, as Jankowski said they’re three to four times more likely to buy the Apple Watch than those from other generations. The analyst also said that in general, purchase intent for the smartwatch was “solid,” with 11% of iPhone users being “very likely” to buy one and 25% being “somewhat likely.” Among iPhone users, 21% of Millennials were “very likely” to buy an Apple Watch, while the percentage for non-Millennial iPhone users was much lower at 4%.
Interestingly, wearers of traditional watchers who also use smartwatches are especially likely to buy an Apple Watch this year, compared to 11% of overall iPhone owners.
Apple and the Internet of Things
Looking out to the long term, the Goldman team sees huge opportunities for Apple in the Internet of Things, even though the company has not yet moved far into this space of the tech industry. They think the iPhone will become “the center of your connected world” as people may one day use their smartphones to do almost everything.
One interesting thing they note about Apple is that it differentiates itself by emphasizing privacy. While Google relies on an ad-based model, Apple does not, focusing instead on privacy. The analysts believe with the Internet of Things, people will be willing to pay more for privacy, thus making Apple the winner in this area.
Indeed, Apple appears to be setting itself for a big play into the Internet of things with Apple Music, the Apple Watch, the new Apple TV set-top box, Apple Pay, CarPlay, HomeKit, HealthKit and now ResearchKit. It will take some time for the company’s full strategy to be made clearer, but these are clear strides in the direction of the Internet of Things.
As of this writing, shares of Apple were down 1.94% at $112.98 per share.
Graphs/ charts in this article are courtesy Goldman Sachs.
