Apple Inc. ’s stock remains an attractive long-term buy, but “unrealistically high” iPhone 6S sales expectations are a near-term risk, Pacific Crest analyst Andy Hargreaves wrote in a note to clients. “Anecdotal evidence suggests demand for iPhone 6s is lower than demand for iPhone 6,” he said.
Data Shows Apple Inc. Projections are Incorrect
Hargreaves considers Apple Inc. ‘s assessment that first-weekend “sales” are well on track to set a new record to be a statement on supply. The analyst said that his evaluation of a number of data points suggest that demand for iPhone 6S is “meaningfully” lower than what was for the iPhone 6. Google search data, third-party surveys, device shipment times and a lack of comments from carriers all point to comparatively weaker demand.
Hargreaves further said, “Third-party survey data suggested that the iPhone 6 upgrade rate was significantly higher than the 5S upgrade rate, and now seems to suggest the iPhone 6S upgrade rate will normalize to a level well below what we saw in the 6 cycle. This is an impediment to unit volume and is the primary reason we expect iPhone units to decline early in the 6S cycle.”
On Apple Inc. ‘s much touted iPhone Upgrade Program, the analyst is generally positive. But after considering numerous scenarios, he suspects that the potential benefits will be offset by the financing costs. He further states that “deflation in used iPhone pricing from increasing supply, and cannibalization of people that already bought phones every year or already purchased AppleCare,” could also lead to lower than expected upgrades.
The Pacific Crest report is in direct contrast what UBS had to say about the Upgrade Program yesterday. Analyst Steven Milunovich expects the program to be a “big deal,” with the potential to add up to $0.36 to EPS.
Pacific Crest, however, reiterated their “sector weight” rating on the stock. Apple Inc. shares are down in Thursday pre-market trade, putting them on track to snap the 5-day winning streak. The stock has slumped 9 percent over the past 3 months, compared to the Dow Jones Industrial Average 6.7 percent drop.
Hard Act to Follow
The iPhone 6 is till date Apple Inc.’s most adopted model. Even after a year of sales, the handset accounts for close to 30 percent of all active iPhones. Overall, the iPhone 6 family has a combined share of 39 percent. That certainly seems to be a very tough act to follow for the 6S.
On top of that the iPhone 6 has achieved the highest app engagement by any iPhone till date. This had something to do with the bigger displays of the 6 and 6 Plus that convinced users to engage more with apps. The two iPhone 6 devices, on an average, saw around 15.5 app launches every month.