Apple’s iPhone Is In Much Better Shape Than How It Is Being Portrayed
Apple’s shares have regained all their post-December quarter results losses and are now trading above the $167.78 it closed on February 1, the day of the announcement. The stock went as low $150.24 on February 9 and finished at $172.43 on Friday, February 16. It appears that investors have digested that the iPhone results and outlook aren’t as bad as they appeared . (Note that I own Apple shares).
December quarter iPhone results
Apple reported that it sold 77.3 million iPhones during the holiday quarter, which was 1% lower than a year ago. However, the December 2016 quarter had 14 weeks so when iPhone sales are looked at on a weekly basis iPhone units increased 6% year over year.
iPhone revenue growth was even more impressive due to its average selling price, or ASP, increasing from $695 the previous December quarter to $796 in the December 2017 quarter. The reported revenue growth was 13%, but when adjusted for the extra week in 2016 revenue growth was 22%. Both Tim Cook and Luca Maestri, Apple’s CFO, made a point of this on the conference call.
Tim Cook said, “In Urban China and the U.S., the top five smartphones last quarter were all iPhones. And in Japan and the UK, six of the top seven were iPhones.” My take is that it is hard to ask for much more than that .
iPhone channel inventory was higher than expected
Maestri tried to pull a bit of a fast one by changing how he described the iPhone’s channel inventory. Typically he calls out the difference from the previous September quarter, but this time he gave a delta to the inventory level a year ago. He said that there were less than 1 million in the channel compared to the previous December quarter. What this translates to is an increase of about 4 million units from the September 2017 quarter. This compares to a 3.3 million unit increase two years ago when the iPhone 6s was launched and 1.2 million for the iPhone 7.
After adjusting for 2016’s and 2017’s December quarter channel inventory changes and the 14 week quarter a year ago, the iPhone’s unit growth was 2%. Of all the numbers this was probably the most disappointing .
The large increase appropriately prompted a concern that there are too many units in the channel, and if it needs to be worked down over the next couple of quarters it will lower the number of reported iPhone sales. That occurred with the iPhone 6s two years ago as it saw channel inventory decreases of 450 thousand in the March 2016 quarter and just over 4 million in the June 2016 quarter. We won’t know if this scenario will play out with the iPhone 8 and X, but we can make some projections to see what the impact could be.