Apple (AAPL): An Earnings Preview — Is a Downward Trend Emerging in iPhone Sales?

Consensus EPS and EBITDA estimates for this year should have some upside if the upward revisions in iPhone sales prove accurate.

AAPL reports 1QF17 (December 2016) results after the market close today. For the full year F2017 (September), Visible Alpha data shows consensus revenue revisions downward in key product segments over the past month, roughly since the end of the holiday shopping season for the iPhone, iPad, and Software/Services product segments. However, iPhone and Software/Services revenue forecast consensus for the full year F2017 is higher vs. consensus as of six months ago (by ~4.3% and 2.7%, respectively).

iPhone Deep Dive

Since iPhone and iTunes/Software/Services product segment gross margins are Apple’s highest segment margins in terms of forward revenue vs. margin consensus, let’s dive into analyst assumptions in these two areas.

iPhone Product Page

For illustrative purposes only.

Although consensus revenue forecasts for both of these segments are higher than they were six months ago, the consensus forecast for AAPL’s consolidated gross margin for F2017 is actually lower by 80bp than it was as of six months ago. Additionally, total company EBITDA margin has been revised downward by 50bp over the same timeframe.

Product and Consolidated Margins (Revisions On)

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After Months of Optimism, A More Recent Negative Trend Emerges

Visible Alpha data shows recent declines in some of AAPL’s key sales metrics, specifically iPhone sales downward consensus revisions since the end of the holiday season. Even though the full year estimate is approximately $4.9B higher than consensus as of six months ago, iPhone revenue and consensus for full year F2017 declined by approximately $1.7B over the past month.

Apple Revenue Model (Revisions On)

For illustrative purposes only.

Likely Led by Declining Unit Volumes

In advance of the expected iPhone 8 upgrade cycle from AAPL later this year, this consensus downward revision in iPhone sales seems closely related to lower iPhone 7 unit sales expectations offset in part by higher ASPs. iPhone unit forecast consensus for the F2017 year has declined by 4.1 million global units or nearly 2% vs. the consensus as of six months ago. Some companies that are component suppliers for the iPhone have reported upside surprises so far in this earnings season. Moreover, lead times vary widely for components/parts into the iPhone supply chain for forward quarterly periods.

iPhone Product Page (Revisions On)

For illustrative purposes only.

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