Munster: iPhone to return to growth in 2016 despite macroeconomic worries

Posted:
in iPhone edited January 2016
Explaining Tuesday's earnings call, Piper Jaffray analyst Gene Munster said Apple's repeated allusions to macroeconomic headwinds might have "spooked" investors despite a better than expected guide on iPhone, but the analyst sees light at the end of the tunnel.




In a research note prepared following Apple's earnings conference call, Munster pointed to AAPL shares trading down about 3 percent in after hours action, saying the company's outlook on the world economy was more cautious than anticipated. By his count, CEO Tim Cook and CFO Luca Maestri mentioned negative macro trends nine times during prepared statements, and another four in the Q&A session.

"While we were expecting some level of cautious macro commentary given the volatility in global stock markets, decline of commodity prices, and uncertainty in the Chinese economy, the level of caution described by Apple was greater than we would have expected," Munster writes.

In a rare move, Apple released supplemental material along with its usual 8-K SEC filing to demonstrate the extent to which currency headwinds impacted results. It was calculated that $100 of non-U.S. dollar revenue at the end of fiscal 2014 translates to only $85 in the just ended period, meaning first quarter 2015 revenue would have been $5 billion higher at "constant currency." This disparity was the first issue Cook addressed in today's call.

Apple recorded its best quarter ever in December, selling a record 74.8 million iPhones to rake in $18.4 billion in profit on revenues of $75.9 billion. In spite of its record-breaking performance, investors are concerned that iPhone unit growth, Apple's biggest revenue driver, is slowing.

Apple is guiding the first-ever decline in year-over-year iPhone sales for the current March quarter. Munster expects a year-over-year decline in the double digits this quarter, but points out Apple's own guidance is ahead of buy side expectations. Further, he believes March will likely be the nadir of iPhone growth for the next two years.

"If the macro headwinds continue to be an issue for AAPL, we would expect it to impact the entire market and would still view AAPL as a relative winner even in a down market environment as we believe tech investors would view the safety of Apple's capital return program as a positive," Munster writes.

Munster is modeling March iPhone at 53 million units, down 13 percent year over year but better than an initial negative 17 percent estimate. Judging by Cook's comments on the day, iPhone should improve throughout the year as an impending "iPhone 7" launch cycle approaches. Munster expects iPhone to be down 10 percent in the June quarter compared to 2014 and flat for the three-month period ending in September before returning to growth -- 80 million units -- in December.

Piper Jaffray adjusted its Apple price target down from $179 to $172 due to lower earnings per share, but the stock retains an Overweight rating as Munster's top pick for 2016.
jagnut
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Comments

  • Reply 1 of 41
    tenlytenly Posts: 707member
    This would be great news...but I'm trying to remember...has Piper Jaffray and Munster EVER been right about ANYTHING???
  • Reply 2 of 41
    jonljonl Posts: 210member
    tenly said:
    has Piper Jaffray and Munster EVER been right about ANYTHING???
    Munster was right when he gave up on his delusion concerning the imminent release of the Apple TV Set. Of course, it didn't exactly offset the stupidity of that belief. I suppose Munster is not as bad as Brian White.

  • Reply 3 of 41
    Apple again had another spectacular quarter, and again Apple gives cautious guidance. What else is new? There may be world economic worries, but that is all, I believe China will bounce back, India will continue to grow, and the US stock market will bounce back after the election year. I'm holding and enjoying dividends for now, and patiently waiting for better days. Been holding over a decade, what's a few more quarters or years. I've seen lots of ups and downs since 2004 since I bought most all my Apple stock. It was worse back then when there was no dividend. Apple is doing just fine, they are still in the game.
    anantksundarambadmonk
  • Reply 4 of 41
    All the negative news from the supply-chain information caused the stock to fall, so the news of a decline in the next quarter should already be built into the current price, right? Or will Wall Street punish the stock further since the Street has always been unreasonable?
  • Reply 5 of 41
    Growth, schowth...AAPL is still making hand over fist every quarter, even at 0% growth.  The real emphasis should be on maintaining ASP and margins as these are what contribute to the cash pile.

    Also, don't know the number off the top of my head, but how many companies in the S&P500 are even worth 18.4bil in total market cap?
  • Reply 6 of 41
    Rayz2016Rayz2016 Posts: 4,630member
    appleempl said:
    Apple again had another spectacular quarter, and again Apple gives cautious guidance. What else is new? There may be world economic worries, but that is all, I believe China will bounce back, India will continue to grow, and the US stock market will bounce back after the election year. I'm holding and enjoying dividends for now, and patiently waiting for better days. Been holding over a decade, what's a few more quarters or years. I've seen lots of ups and downs since 2004 since I bought most all my Apple stock. It was worse back then when there was no dividend. Apple is doing just fine, they are still in the game.
    Good lord!

    Someone who knows how to invest properly… 
    fastasleep
  • Reply 7 of 41
    Rayz2016Rayz2016 Posts: 4,630member

    Growth, schowth...AAPL is still making hand over fist every quarter, even at 0% growth.  The real emphasis should be on maintaining ASP and margins as these are what contribute to the cash pile.

    Also, don't know the number off the top of my head, but how many companies in the S&P500 are even worth 18.4bil in total market cap?

    What surprised me is that even without the iPhone, they're still making more money than Microsoft, and unlike Microsoft, they don't really have a captive market. 
  • Reply 8 of 41
    All the negative news from the supply-chain information caused the stock to fall, so the news of a decline in the next quarter should already be built into the current price, right? Or will Wall Street punish the stock further since the Street has always been unreasonable?
    Was down 2.5% after hours. Who knows where it will actually end up tomorrow.
  • Reply 9 of 41
    tenly said:
    This would be great news...but I'm trying to remember...has Piper Jaffray and Munster EVER been right about ANYTHING???
    Back in the olden days when AAPL was something like $20 (prior to the stock split) per share, practically every single Analyst had written Apple off except Munster. For at least 5 year of super rapid growth, he was one of the few that was actually right with the overall conclusion that AAPL was destined for good times.
    His numbers may have been out in recent times, but his historical positivity sure hasn't been.

    Currently, his numbers are too high as a short term target, but I have no doubt that Apple can reach those heights long term. 
    edited January 2016
  • Reply 10 of 41
    josujosu Posts: 217member
    tenly said:
    This would be great news...but I'm trying to remember...has Piper Jaffray and Munster EVER been right about ANYTHING???
    Back in the olden days when AAPL was something like $20 (prior to the stock split) per share, practically every single Analyst had written Apple off except Munster. For at least 5 year of super rapid growth, he was one of the few that was actually right with the overall conclusion that AAPL was destined for good times.
    His numbers may have been out in recent times, but his historical positivity sure hasn't been.

    Agreed, he was the first to notice what the iPod would mean for AAPL, and the first to see a $70 per share pre split in 2007 or so
    monstrosity
  • Reply 11 of 41
    In a rare move, Apple released supplemental material along with its usual 8-K SEC filing to demonstrate the extent to which currency headwinds impacted results. It was calculated that $100 of non-U.S. dollar revenue at the end of fiscal 2014 translates to only $85 in the just ended period, meaning first quarter 2015 revenue would have been $5 billion higher at "constant currency." This disparity was the first issue Cook addressed in today's call.
    Why use "constant currency" to fudge the numbers? Apple has been raising prices overseas to compensate for the U.S. dollar movement.
    cnocbui
  • Reply 12 of 41
    If mr Ive delivers a killer design that isn't simply an exercise in device thinness, and Apple shaves at least $100 off the exorbitant asking price, it will more than return to growth. A good portion of the iPhone userbase has held off purchasing a 6/6S in lieu of a better future offer. 
    edited January 2016
  • Reply 13 of 41
    tenlytenly Posts: 707member
    hentaiboy said:
    In a rare move, Apple released supplemental material along with its usual 8-K SEC filing to demonstrate the extent to which currency headwinds impacted results. It was calculated that $100 of non-U.S. dollar revenue at the end of fiscal 2014 translates to only $85 in the just ended period, meaning first quarter 2015 revenue would have been $5 billion higher at "constant currency." This disparity was the first issue Cook addressed in today's call.
    Why use "constant currency" to fudge the numbers? Apple has been raising prices overseas to compensate for the U.S. dollar movement.
    The price increases are extremely recent - and prices have not been increased everywhere.  The price increases help but don't completely compensate for the currency changes.

    "Constant currency" is a valid way to convey what would have happened if there had been no "currency headwind" which is largely beyond Apples control - except it doesn't tell the whole story because as you mentioned, Apple has had to raise prices in some countries to help compensate - this always has the effect of reducing sales volumes - so if there had been no headwind, they would have sold more phones too.

    Your comments are phrased in a very troll-like manner.  Just because you don't understand somethings doesn't mean you should attack Apple with such negativity.  Just ask nicely and someone smarter than you will explain it.  The forum is literally filled with people that fit that description!
    anantksundaram
  • Reply 14 of 41
    hentaiboy said:
    In a rare move, Apple released supplemental material along with its usual 8-K SEC filing to demonstrate the extent to which currency headwinds impacted results. It was calculated that $100 of non-U.S. dollar revenue at the end of fiscal 2014 translates to only $85 in the just ended period, meaning first quarter 2015 revenue would have been $5 billion higher at "constant currency." This disparity was the first issue Cook addressed in today's call.
    Why use "constant currency" to fudge the numbers? Apple has been raising prices overseas to compensate for the U.S. dollar movement.
    Take the trouble to look at the MD&A section of any 10K or 10Q put out by any respectable company. A presentation of organic, constant-currency growth rates relative to the last period is standard disclosure fare. 
    nemoeacsingularity
  • Reply 15 of 41
    tenlytenly Posts: 707member
    sog35 said:
    All the negative news from the supply-chain information caused the stock to fall, so the news of a decline in the next quarter should already be built into the current price, right? Or will Wall Street punish the stock further since the Street has always been unreasonable?
    Just another example of Tim Cook mismanaging the company.

    If Cook knew the March quarter was going to be weak he should have warned earlier. Now the stock is going to get punished during the rumor (weak supply chain) and also during the news (earnings).  Cook should have gotten in front of the rumors of weak sales. Instead he did nothing and allowed the story to be spread and repeated for EIGHT WEEKS.  

    Stock was down over 4% this morning and won't be surprised if it goes down another 10% for a total of a 40% drop since last year.  If Tim managed the company better he would have warned when the stock was at $120 and yes it would drop.  But it would not be $85 like it will now.  It would be strongly above $100-$110 right now.
    I want to agree with you - but was it appropriate or even legal for him to do so?  There was no miss this quarter and they hadn't released any guidance yet for next quarter.  I honestly don't know what the rules are.  Are you sure that he would have been legally allowed to say anything?  Or were they in a quiet period?  What I found interesting is that they didn't seem to have accelerated the share buyback.  That tells me that they think it might still go lower.  If they really thought this was the "bottom", I would have thought that they would have spent ALL of the allocated funds.

    I'm set to lose a ton on call options that expire in April and July.  Glad that I put most of my money in actual shares.  I was actually tempted to put it ALL into options back in September.  I need $119 to break even on the options - and at this point it's really not looking good.  If they expire worthless, it's pretty much all of the profit I've made on Apple in the last 5 years reduced to 0.  :(

  • Reply 16 of 41
    sog35 said:
    All the negative news from the supply-chain information caused the stock to fall, so the news of a decline in the next quarter should already be built into the current price, right? Or will Wall Street punish the stock further since the Street has always been unreasonable?
    Just another example of Tim Cook mismanaging the company.

    If Cook knew the March quarter was going to be weak he should have warned earlier. Now the stock is going to get punished during the rumor (weak supply chain) and also during the news (earnings).  Cook should have gotten in front of the rumors of weak sales. Instead he did nothing and allowed the story to be spread and repeated for EIGHT WEEKS.  

    Stock was down over 4% this morning and won't be surprised if it goes down another 10% for a total of a 40% drop since last year.  If Tim managed the company better he would have warned when the stock was at $120 and yes it would drop.  But it would not be $85 like it will now.  It would be strongly above $100-$110 right now.
    Companies only worn if they're going to miss guidance. Apple didn't miss guidance for the quarter they reported on. And the didn't previously provide guidance for March. Just a week or two ago you were calling all rheas rumors BS now you're whining that Cook didn't get in front of them. If the numbers are going to be weak they're going to be weak and there's nothing Cook can say to change that. 
    jonl
  • Reply 17 of 41
    lkrupplkrupp Posts: 7,162member
    I’m starting to come around to @sog35 ’s point of view. I almost hope AAPL tanks massively so Apple can buy back even more shares. If Apple’s market cap drops to $200 billion they have the cash to literally buy themselves. Taking the company private would eliminate all this Doomed™ nonsense. Apple would still be Apple, its products would still be great, its customers still loyal. The extreme pressure to produce short term results would vanish, the politically correctness Nazis would be muzzled. This was discussed on yesterday’s MacBreak Weekly podcast. The Apple some of us here love (the iHaters are growing in numbers on AI) has become completely disconnected from AAPL the stock. Investors in public corporations have different goals, different demands than we customers. 
  • Reply 18 of 41
    steviestevie Posts: 956member


    Also, don't know the number off the top of my head, but how many companies in the S&P500 are even worth 18.4bil in total market cap?

    Exxon and Apple are birds of a feather.  Together they could buy the world.
  • Reply 19 of 41
    lkrupp said:
    I’m starting to come around to @sog35 ’s point of view. I almost hope AAPL tanks massively so Apple can buy back even more shares. If Apple’s market cap drops to $200 billion they have the cash to literally buy themselves. Taking the company private would eliminate all this Doomed™ nonsense. Apple would still be Apple, its products would still be great, its customers still loyal. The extreme pressure to produce short term results would vanish, the politically correctness Nazis would be muzzled. This was discussed on yesterday’s MacBreak Weekly podcast. The Apple some of us here love (the iHaters are growing in numbers on AI) has become completely disconnected from AAPL the stock. Investors in public corporations have different goals, different demands than we customers. 
    Considering how much Apple has fallen in the last few months it's pretty ridiculous that the stock is down over 5% today. Every analyst on the planet was predicting a soft March quarter so nothing Apple reported should have been surprising and one would assume most of that was already priced into the stock. Apparently not.
  • Reply 20 of 41
    tundraboytundraboy Posts: 1,618member
    All the negative news from the supply-chain information caused the stock to fall, so the news of a decline in the next quarter should already be built into the current price, right? Or will Wall Street punish the stock further since the Street has always been unreasonable?
    The stock market attracts the biggest collection of wusses, cry babies and nervous nellies you've seen this side of a delusional paranoiac convention.  Somebody will start a rumor and when the rumor comes around full circle and reaches him, the idiot will view it as confirmation and promptly panic and unload his holdings.  
    edited January 2016
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