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

AppleInsider · January 27, 2016 4:31AM

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.

tenly · January 27, 2016 5:15AM

This would be great news...but I'm trying to remember...has Piper Jaffray and Munster EVER been right about ANYTHING???

jonl · January 27, 2016 5:29AM

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.

bestkeptsecret · January 27, 2016 6:31AM

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?

avidthinker · January 27, 2016 6:35AM

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?

rayz2016 · January 27, 2016 7:51AM

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…

rayz2016 · January 27, 2016 7:52AM

avidthinker said:

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.

rogifan_old · January 27, 2016 8:13AM

bestkeptsecret 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?

Was down 2.5% after hours. Who knows where it will actually end up tomorrow.

monstrosity · January 27, 2016 9:16AM

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

josu · January 27, 2016 9:22AM

monstrosity said:

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

hentaiboy · January 27, 2016 10:13AM

AppleInsider 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.

6sgoldfish · January 27, 2016 10:16AM

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

tenly · January 27, 2016 10:27AM

hentaiboy said:

AppleInsider 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 · January 27, 2016 12:43PM

hentaiboy said:

AppleInsider 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.

tenly · January 27, 2016 1:37PM

sog35 said:

bestkeptsecret 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.

rogifan_old · January 27, 2016 2:08PM

sog35 said:

bestkeptsecret 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.

lkrupp · January 27, 2016 2:33PM

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.

stevie · January 27, 2016 2:36PM

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.

rogifan_old · January 27, 2016 2:53PM

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.

tundraboy · January 27, 2016 3:10PM

bestkeptsecret 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?

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

tenly · January 27, 2016 3:13PM

sog35 said:

rogifan_old said:

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.

Bullshit. You can warn about anything you want. Hell we got companies that warn about revenue projections 12 months away. Of course Apple could have warned about March.

Apple's suppliers who did not even release December earnings were warning about March sales. Apple should have done the same. Apple knew March sales were going to be weak in December because they were already cutting orders.

If Apple warned about March when the rumors started that would have stopped the bleeding. There would be no mystery. But Cook allowed the company to continue to bleed, and bleed, and bleed. If he acknowldged the weakness in December the stock probably would have dropped but not to where we are going now. We will see $85 now. That is EXACTLY why companies warn, to get ahead of the rumors and stop the bleeding.

Now Apple will bleed some more. The stock was already down $4 this morning. This type of behavior makes investors not trust Cook. I know I don't trust him. I won't sell a single share. I'm going to wait it out. Tim Cook will be fired within the next 12 months. You can bank on it. And once he does this stock will take off again.

It does seem almost fraudulent to me that he didn't warn - especially in light of the fact that he had previously, on numerous occasions, instructed investors to ignore supply chain data. Maintaining silence while all of the reports were being circulated seems negligent, almost fraudulent and an attempt to deliberately hide things from investors. I'm very curious to know if he personally sold any shares over the past 3-4 months. That information should become public at some point - shouldn't it? Where?

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

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