Munster: Fears of March iPhone sales contraction overdone, December report will clear the air

Posted:
in AAPL Investors edited January 2016
Deviating from a bandwagon of media reports interpreting recent supply chain rumors as a harbinger of iPhone's first year-over-year sales contraction, PiperJaffray analyst Gene Munster believes production estimates have little to do with final reported sales. For a more accurate representation, investors should instead look to key data points from Apple itself.




In a note to investors sent out on Tuesday, Munster said Apple's own guidance is likely the best predictor of future iPhone growth, or lack thereof. He points out that the company has not missed estimates since shifting guidance methodology in 2013 to buffer against overly enthusiastic Wall Street expectations, which was becoming a problem at the time.

"We believe the December guide implies slight growth of iPhone y/y including CEO Tim Cook's specific mention that iPhones would grow y/y," Munster writes.

Earlier today Nikkei reported Apple suppliers are bracing for a steep cut to iPhone 6s parts orders for the current March quarter that could be 30 percent lower than originally expected. The publication claims iPhone 6s and 6s Plus units have "piled up at retailers" since launching in September, suggesting slower demand than usual. Apple stock dropped more than 2 percent in after hours trading following the report's release.

The Nikkei report is the latest to predict a foreboding March quarter iPhone. Over the past weeks, investment firms FBR & Co., RBC Capital Markets, J.P. Morgan and Morgan Stanley slashed sales estimates for the March quarter on supply chain whispers of trimmed order estimates. Despite solid growth numbers throughout 2015, investors are concerned the market is oversaturated and has finally reached "peak iPhone."

"An important factor that is missed in the attention to concerning March data points is that the optimism for iPhone growth improves as comps get easier," Munster writes, adding that investors are largely waiting for the upcoming Q1 earnings report to buy. "We believe the hyperconcern around the bigger picture that the iPhone franchise is healthy and will benefit over the next several years from the move to annual upgrade programs."

For the coming holiday quarter, Apple projects revenue between $75.5 billion and $77.5 billion, with gross margins between 39 and 40 percent, up slightly from the year ago period. Further, in an earnings call discussing the fourth fiscal quarter of 2015, CEO Tim Cook specifically mentioned that overall iPhone shipments are expected to grow year over year.

"Overall, this data point, albeit old, lends us confidence that March may not be as bad as expected assuming that if iPhone demand is up slightly in December and the overall smartphone market is stable with a large upgrade base of existing iPhone users, we would expect narrower change in the December and March growth rates," Munster says.

PiperJaffray maintains an Overweight rating for Apple stock with a price target of $179.

Apple will reveal its important holiday quarter results, and offer guidance for the coming March quarter, on Jan. 26. AppleInsider will be reporting live.

Comments

  • Reply 1 of 15
    rob53rob53 Posts: 3,010member
    "peak iPhone" ? No such thing. iPhones are like cars. The majority of car owners only keep them for a few to a few more years then buy again. People will continue to purchase new iPhones at a faster pace than Macs and PCs (well, maybe not PCs). 

    I just wish the stock market could control all this bogus information and heavily fine analysts and unsubstantiated report makers to get them to stop. 
  • Reply 2 of 15
    I'm not sure what planet you live on where the "majority" of car buyers keep their car for only a few years before buying a new one, but the atmosphere there must be as thin as your simile.
    canukstorm
  • Reply 3 of 15
    tzeshantzeshan Posts: 2,351member
    Apple will face stiff competition from Chinese manufacturers soon.  Huawei is making copycats of all Apple devices including iPhone, iPad, and iMac.  They look almost identical to Apple devices but at lower prices.  This is going to stop Apple momentum in the China market.  
  • Reply 4 of 15
    tzeshan said:
    Apple will face stiff competition from Chinese manufacturers soon.  Huawei is making copycats of all Apple devices including iPhone, iPad, and iMac.  They look almost identical to Apple devices but at lower prices.  This is going to stop Apple momentum in the China market.  
    Haha people were saying 2 years ago that Apple was doomed because of cheap Chinese copycats. First the media was all over Xiaomi, now it's Huawei.
    ericthehalfbeetdknoxbobschlobbestkeptsecretnemoeaccornchiplatifbp
  • Reply 5 of 15
    rob53rob53 Posts: 3,010member
    I'm not sure what planet you live on where the "majority" of car buyers keep their car for only a few years before buying a new one, but the atmosphere there must be as thin as your simile.
    First of all, my simile was given to me by AI when they changed their forum system. I'll look for a better one.

    "As of Q1 2015, the average length of ownership for a new vehicle is 77.8 months, according to IHS analysis, an increase of nearly 26 months since Q1 2006. For used vehicles, it is 63 months, an increase of just over 25 months (since Q1 2006)." 2006 was right before the latest recession, which makes sense since everyone was buying whatever they could. Even so just over 6 years is on the upper range of my "few to a few more years" but these are averages, not the majority. Either way, smartphones are still in their infancy compared to just about everything else so there will be higher turnover until quality stabilizes to the point where people actually keep their smartphones for a longer time (see article for the basis of my statement). 

    How many smartphones/mobile devices have you purchased in the last 6+ years? Are you still using a Motorola flip phone? An iPhone 3 or 4? Maybe one of those cheap android-based phones that will always need to be replaced in a few years. My analogy was fine and I live a couple hundred feet above sea level.

    http://www.thestreet.com/story/13235449/1/ihs-automotive--length-of-vehicle-ownership-2005-15-graphic-business-wire.html
    bobschlob
  • Reply 6 of 15
    mvigodmvigod Posts: 172member

    Munster?  Wasn't he the guy who said Apple was going to have a panel Apple TV a couple years ago?   How did that prediction work out?

    How about how wrong he was on the iPhone 5c?  Read appleinsider "This was profoundly wrong in every respect" and "Munster not only got all of his predicted details wrong, but also demonstrated that he had no idea of what Apple's overall strategy fo rthe 5c actually was".


    These are just two of the dozens of completely off base and wrong predictions by Herman Munster.  His price targets and EPS estimates have been wildly off.

    The one thing he does well is that despite being wildly wrong most of the time many consider him the "top apple research analyst".  What he really is just a mega perma-apple-bull.  Apple will grow to the moon in Munsters world.  Matter of fact the Apple Car will put every car mfg out of business once launched.  Nobody stands a chance - according to Munster.

    In reality his most amazing feat is getting quoted constantly by news media and financial media while being so wrong so often and keeping his job there at Piper.  I'm pretty sure all of us on this board can make as many bad predictions as he can and cash those million dollar checks for being wrong month after month, year after year.  
    edited January 2016
  • Reply 7 of 15
    boredumbboredumb Posts: 1,418member
    I can't understand why a responsible analyst would want to interfere with the "Apple is doomed" juggernaut...?
    cornchip
  • Reply 8 of 15
    rob53 said:

    First of all, my simile was given to me by AI when they changed their forum system. I'll look for a better one.

    "As of Q1 2015, the average length of ownership for a new vehicle is 77.8 months... Either way, smartphones are still in their infancy compared to just about everything else so there will be higher turnover until quality stabilizes to the point where people actually keep their smartphones for a longer time (see article for the basis of my statement). 

    How many smartphones/mobile devices have you purchased in the last 6+ years? Are you still using a Motorola flip phone? An iPhone 3 or 4? Maybe one of those cheap android-based phones that will always need to be replaced in a few years. My analogy was fine and I live a couple hundred feet above sea level.

    http://www.thestreet.com/story/13235449/1/ihs-automotive--length-of-vehicle-ownership-2005-15-graphic-business-wire.html
    Averages aren't the majority? Well, that's definitely true. Averages are everyone, so they are essentially more accurate.

    Your metaphor might have been fine, I don't know. You never used a metaphor. 

    You're also not making sense now on the comparison- you're asking how many phones I or other people have owned over the last six years, implying quite a few vs the number of cars they've owned, which on average you're now saying is that same six year period. So clearly you've discarded the original thesis, which is totally fine, but at least admit to having been mistaken if you're going to that. 

    Lets address the real issue though since the whole car comparison obviously doesn't hold up. The issue isn't how many phones I or anyone else has owned over the past however many years. The issue is how many they will own over a similar number of years moving forward, and whether Apple can continue to grow its iPhone business either through buyers upgrading or through market expansion. I'm not a fortune teller, so I'm not going to pretend to know the answer. I will say though, that I find more and more satisfaction in my current model iPhone, and less and less of a feeling of, "I absolutely must upgrade every two years." When iPhone 7 comes out, Apple will have to make a really good case, otherwise I may wait until the 8 to upgrade, which for me would be a 4 year interval.

    Unless you'd like to argue that I'm the only one who feels this way (and you might, bc I clearly have been wrong about not buying a new car every few years), then there is cause to be concerned, because it could in fact be evidence of a potential slow down in iPhone sales in much the same way we have seen a slow down in iPad sales. (Although I'm certainly not suggesting any slowdown would be as severe.)

    In other words, we disagree on another point you made, you feel that smartphones are "in their infancy." I think that, in spite of any future innovations or iterations, most people no longer feel that way about them.
  • Reply 9 of 15
    jonljonl Posts: 210member
    mvigod said:

    Munster?  Wasn't he the guy who said Apple was going to have a panel Apple TV a couple years ago?   How did that prediction work out?
    Munster carried the torch for that genuinely and obviously dumb idea for years. That was Zaky-level dumb albeit on a smaller scale.
    bobschlob
  • Reply 10 of 15
    evilutionevilution Posts: 1,398member
    rob53 said:
    First of all, my simile was given to me by AI when they changed their forum system. I'll look for a better one.
    Simile not Smiley

    Simile - a figure of speech involving the comparison of one thing with another thing of a different kind, used to make a description more emphatic or vivid
  • Reply 11 of 15
    tzeshantzeshan Posts: 2,351member
    tzeshan said:
    Apple will face stiff competition from Chinese manufacturers soon.  Huawei is making copycats of all Apple devices including iPhone, iPad, and iMac.  They look almost identical to Apple devices but at lower prices.  This is going to stop Apple momentum in the China market.  
    Haha people were saying 2 years ago that Apple was doomed because of cheap Chinese copycats. First the media was all over Xiaomi, now it's Huawei.
    Xiaomi did not produce a high quality copycat of iPhone.  Huawei is different this time.  The price is near $600.  Since iPhone is priced much higher in China, this gives Huawei copycat a strong competition in China as far as i can see.  
  • Reply 12 of 15
    bobschlobbobschlob Posts: 1,074member
    mvigod said:

    Munster?  Wasn't he the guy who said Apple was going to have a panel Apple TV a couple years ago?   How did that prediction work out?

    How about how wrong he was on the iPhone 5c?  Read appleinsider "This was profoundly wrong in every respect" and "Munster not only got all of his predicted details wrong, but also demonstrated that he had no idea of what Apple's overall strategy fo rthe 5c actually was".


    These are just two of the dozens of completely off base and wrong predictions by Herman Munster.  His price targets and EPS estimates have been wildly off.

    The one thing he does well is that despite being wildly wrong most of the time many consider him the "top apple research analyst".  What he really is just a mega perma-apple-bull.  Apple will grow to the moon in Munsters world.  Matter of fact the Apple Car will put every car mfg out of business once launched.  Nobody stands a chance - according to Munster.

    In reality his most amazing feat is getting quoted constantly by news media and financial media while being so wrong so often and keeping his job there at Piper.  I'm pretty sure all of us on this board can make as many bad predictions as he can and cash those million dollar checks for being wrong month after month, year after year.  
    Yes. My comment to Munster our perennial Apple bull analyst is always, "Gene! Please stop helping!" "Thank you..."
  • Reply 13 of 15
    bobschlobbobschlob Posts: 1,074member

    tzeshan said:
    Haha people were saying 2 years ago that Apple was doomed because of cheap Chinese copycats. First the media was all over Xiaomi, now it's Huawei.
    Xiaomi did not produce a high quality copycat of iPhone.  Huawei is different this time.  The price is near $600.  Since iPhone is priced much higher in China, this gives Huawei copycat a strong competition in China as far as i can see.  
    This is a big yawn.
    Another few years and Apple will be saying, "Hey remember when people used to use those things called "smartphones"? LOL" Boy, how primitive."
    Apple will have innovated into something else. That's what they do.
  • Reply 14 of 15
    latifbplatifbp Posts: 544member
    I'm not sure what planet you live on where the "majority" of car buyers keep their car for only a few years before buying a new one, but the atmosphere there must be as thin as your simile.
    Leasing
  • Reply 15 of 15
    jony0jony0 Posts: 368member
    tzeshan said:
    Apple will face stiff competition from Chinese manufacturers soon.  Huawei is making copycats of all Apple devices including iPhone, iPad, and iMac.  They look almost identical to Apple devices but at lower prices.  This is going to stop Apple momentum in the China market.  
    Haha people were saying 2 years ago that Apple was doomed because of cheap Chinese copycats. First the media was all over Xiaomi, now it's Huawei.
    And there are a lot more Chinese companies making cheap imitations, like the killer iPhone chargers. Most of the knockoffs are irrelevant as most of those cheapskate buyers probably wouldn't buy the Apple product anyway or in the case of the chargers, will spend hundreds of dollars for the high margin iPhone only to skimp on a few dollars for an accessory. I suspect that the ones who buy the copycat devices based on their resemblance alone yet run other operating systems are quite inconsequential to Apple's bottom line as well, these aren't T shirts or sneakers.
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