Apple Inc. sold more than 13 million units of the iPhone in the first weekend of availability for the device. That blows past the opening sales of any other major release from the firm, and it was taken by many Wall Street analysts as a sign of strong demand for the year ahead. Tony Sacconaghi of Bernstein has a different opinion.
In a report published in the hours after Apple revealed its blow out sales numbers Mr. Sacconaghi warned that the giant sell through of the iPhone 6S was a result of very liquid supply rather than much bigger demand. He says it remains clear from evidence that demand for the iPhone 6S is not quite as fearsome as demand for the iPhone 6 was in 2014.
Apple makes the iPhone 6S with ease
When the iPhone 6 was launched last year Apple faced real problems with supply. This weekend, despite a higher level of sales, Apple has been able to keep supply of the device much more liquid. Most of those buying a phone online right now are being promised shipment in a short window. That simply wasn’t true when the iPhone 6 was released last year.
Tony is worried about the way in which Apple reported the sales of the iPhone 6S. In the report he published on Monday morning he wrote that the “real measure of initial demand for a new iPhone is orders – Apple typically reports the number of orders it receives in the first 24 hours, but did not this year – leaving us with little to truly gauge demand relative to previous cycles.”
The total weekend sales were bigger by a wide margin, but that’s not a good comparison. In Mr. Sacconaghi’s view, “the figure largely reflects available supply of iPhones, rather than underlying demand.” The Bernstein report went on to note that “Apple’s press release this year did not allude to any supply constraints, in sharp contrast to comments underscoring limited availability for each of the prior 3 iPhone launches.”
For him that means that the 13M iPhone 6S units that were sold over the weekend mark a remarkable achievement for Apple. It’s not the kind of achievement that is likely to guarantee the value of the firm’s shares will go higher, however.
Tim Cook, in a statement about sales of the smart phone, said “Customers’ feedback is incredible and they are loving 3D Touch and Live Photos, and we can’t wait to bring iPhone 6s and iPhone 6s Plus to customers in even more countries on October 9.”
Apple Inc. shows supply genius
There’s a lot of contention on Wall Street about whether Apple will be able to break its iPhone 6 records this time around. Many analysts commenting on the firm on Monday morning, in the wake of the iPhone 6S sales numbers, seem to think that such an outcome is assured. There is a large number who question that, however.
Apple is incredible at keeping its supply chains working, and making itself profitable. The firm does something that almost no firm has ever done, and its revenue, and profits, hit incredible heights as a result.
The Bernstein report draws attention to the fact that the massive supply efficiency at Apple could make it harder to see the real iPhone 6S sales numbers. That may be something to be celebrated rather than mourned, however. Apple just sold 13 million units of the iPhone 6S, and for the first time in years it didn’t have any big problems getting the parts on time.
Letting the iPhone 6S bulls run
Bernstein was one of the more restrained research houses that published in the wake of Apple’s press release on iPhone 6S sales. Many of Wall Street’s other sell side voices were much more optimistic about the Apple’s sales in the wake of the release.
FBR Capital analyst Daniel Ives said that “non-China iPhone 6s units were up roughly between 5% and 10% vs. its predecessor, a Lebron-like performance in our opinion given the high water mark set a year ago.” Ives said that 13 million was the bull case for iPhone 6S sales on the first weekend. He kept his Outperform rating and $175 price target on the firm.
RBC Capital’ Amit Daryanani was also positive in the wake of the sales numbers. He said that it was an “incremental positive given Street expectations were calling for ~12M total units.” He has a $150 price target on Apple for the time being with an Outperform rating on the shares.
Looking for value at Apple
Despite his worries about sales of the iPhone 6S, Mr. Sacconaghi reckons that shares in the firm will Outperform in the months ahead. He has a $135 price target on the firm’s stock and reckons that Tim Cook’s team will hit a broad target of 70-80M iPhone unit sales for the three months through December.
That’s the quarter that Apple records as its second of the year, and it’s the most important earnings report from the firm for multiple reasons. Firstly the quarter is the first full period after the release of a new iPhone. Secondly it includes the holiday season, the most profitable for a plethora of firms in the US and around the world.
Apple, even if the iPhone 6S is the first release that has lower sales than its predecessor, is an incredibly valuable firm. It’s sitting on a pile of cash and talent, and its brand is impeccable.
Whether that makes it worth $135 per share, as Mr. Sacconaghi reckons, or the $200 per share that Steven Milunovich of UBS puts his price target at, isn’t clear, and it won’t be clear for a long time yet.
There’s still a very very long road ahead for the iPhone 6S. Apple is, however, resilient and strong apart from its thriving smart phone business. Even if this year isn’t the firm’s biggest ever in terms of total sales, it will likely be a foundation year for Tim Cook and his team along many other lines.
Wall Street’s sell side, by and large, still seems pretty sure that the firm is worth more than it’s trading for today. At time of writing shares in the Cupertino firm were down 1.6 percent for the day to $112.87. there’s still something eating away at traders, and there’s still a lot of anxiety about the future of Apple.