Apple Stock: iPhone Demand Beating Expectations

Apple stock moved higher today after a report that iPhone demand appears to be better than expected in the March quarter. Morgan Stanley analyst Katy Huberty said her AlphaWise iPhone Tracker suggests that Apple will sell 56.5 million iPhones during the March quarter as China appears to be seeing the strongest growth.

Apple stock climbed by as much as 2.06% to $104.63 per share in afternoon trades.

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iPhone demand looks strong for Q1

Huberty has an Overweight rating and $135 price target on Apple stock. She notes that investors have been extremely skeptical about whether Apple will be able to hit 52 million iPhones during the March quarter, as is implied by its guidance for the quarter and management’s comments on the last earnings call.

However, looking at sell-through data by using “web search analysis,” she said it looks like Apple could sell more iPhones than she has been estimating. Her estimate stands at 49 million, compared to the 56.5 million her AlphaWise iPhone Tracker suggests. She noted that Apple ended the December quarter just above the low end of its five- to seven-week target for iPhone channel inventory, noting that any inventory fill for the company’s indirect distribution channels would pressure estimates even higher.

She estimates that Apple sees about $640 million in revenue and 4 cents per share in earnings for every 1 million iPhone units. She is currently estimating sales of $50.9 billion and $1.94 per share in earnings, putting her behind consensus at $52.1 billion and $1.99 per share.

Apple still doing well in China

The Morgan Stanley analyst also found that of all the major geographic regions, Apple is seeing the strongest growth in China. This is interesting in light of the fact that management highlighted Greater China’s economic weakness, especially in Hong Kong, starting in December. Despite their comments though, Huberty said her data suggests positive growth there on both a year over year and quarter over quarter basis through last month.

She added that growth improved in most areas as well because difficult year over year comparisons started to ease. She noted also that this is a good sign going into the rest of this year because iPhone comparisons get even easier.

Apple stock supported by a bottom in supply chain revisions

The analyst also reports that her colleagues in Asia think Apple’s “supply chain inventory digestion” has ended. Morgan Stanley’s Asia team estimates 40 million iPhone builds for the current and next quarter, although Huberty notes that the iPhone maker’s suppliers built 10 million extra iPhones last year, which are likely to sell through in the current quarter.

However, she also points out that a flat quarter over quarter build for the June quarter is better than the typical seasonality, which is a decline in the low to high teens.

iPhone SE could boost Apple stock further

Huberty also addressed the rumors about a new 4-inch iPhone most are calling the iPhone SE. She thinks it could boost iPhone sales and also Apple stock. The company sent out media invites for an event on March 21, which has been expected for quite some time. Huberty agrees with the rumors that a new 4-inch iPhone will be unveiled.

She thinks the company might even start shipping the new model before the end of the current quarter, which ends March 27. Of course the timing of everything means that most of the sales benefit the iPhone SE may provide won’t come until the June quarter, which she says helps explain why their Asia team is seeing build numbers that are better than typical seasonality.