Apple Inc. (AAPL) reported earnings on Tuesday which disappointed the street. The tech giant said its quarterly earnings rose to 3.28 EPS on 75.9 billion in revenue. Analysts had expected EPS of 3.23 a share with revenue coming in at 76.54 billion. Shares were down 2.57% to $97.42 on the news in after hours trading. Some analysts have a more positive view on the results.
Apple – sell-side reactions
Overall, we think the market has largely priced in the impact of iPhone order cuts on suppliers’ revenues, and y-y iPhone comparison will get easier from the Jun-Q, as noted by Apple. We suggest investors accumulate oversold large-cap Apple suppliers, such as Hon Hai (2317 TT), Largan (3008 TT), Pegatron (4938 TT) and Catcher (2474 TT) – all Buys. For smaller-cap Apple suppliers, such as Flexium (6269 TT, Buy) and ZDT (4958 TT, Buy), we think the share prices will likely take one more month to digest the margin risks amid very low utilisation rates in 1H CY16F, thus potentially presenting a good opportunity in March to further accumulate smaller-cap Apple suppliers, after some will have reported 4Q CY15 results and provided 1Q CY16 margin guidance.
Key Highlights: 1) Gross-margins came in at 40.1%, ~60bps ahead of 39-40% guided range & they are guiding gross-margins to 39-39.5% (~110bps drop q/q); 2) Sales in China came in at $18.4B (+47% q/q, +14% y/y); 3) Cash flow from operations was $27.5B, 4) iPhone ASP’s came in at $690 (+3% q/q) and 5) gross margin guide for Mar-qtr is above investor apprehensions that it could be sub 38%.
Unit Results Below:
iPhone: 74.8M (vs. Street expectations at ~75M)
iPad: 16.1M (vs. Street expectations at ~17.8M)
Mac: 5.3M (vs. Street expectations at ~5.8M)
Neutral/Positive. We believe the Street has become a little too negative onMarch iPhone expectations, with some expecting iPhone units into the low-40 million territory, and most in the mid-high 40 million range, well below our 56.0 million and the published consensus of 54.5 million.
Credit Suisse Asia
Most metrics were a bit light for both F1Q (Dec): 1) Sales at $75.9bn vs. $75.5-77.5bn guide and $76.6bn consensus, 2) GMs in-line at 40.1% vs. 39.9% consensus, 3) iPhone at 74.8mn vs. 75.5mn consensus, and 4) iPad at 16.1mn vs. consensus 17.9mn and also for F2Q (Mar) guidance: 1) Sales $50-53bn vs. consensus $55.7bn, 2) GMs 39-39.5% vs. 40% consensus). iPhone inventory built 3.3mn to 21.7mn to be around 5-6 weeks.
Consistent with lower expectations. Sales guidance down 30-34% QoQ is consistent with the iPhone component supply chain seeing declines of 30-50% factoring in workdown of excess component inventory. We do not see much upside from this result but expect some positioning for iPhone 7 following Chinese New Year as more of the 1H expectation reset is factored in.