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AAPL Loses $50BN In Market Cap As Citi Piles On: Cuts EPS, iPhone Sales Forecast

Courtesy of Zero Hedge

The Apple pile up continues.

After Mizuho downgraded and cut its price target on Apple overnight, following in the footsteps of Pacific Crest from a week ago, we said that "after last Friday's tech sector drubbing we expect more such downgrades in the days to come" and we did not have long to wait: shortly after Citi's Jim Suva also said that he is lowering his September estimates for iPhone units, total revenues and EPS. Specifically, Citi has cut September iPhone unit estimates to 40 mln while December unit estimates increased to 89 mln. This compares with consensus at 47 mln and 83 mln respectively. For FY2017, Citi’s iPhone units and ASPs at 208 mln/$664 vs. consensus at 217mln/$658. This drives Citi's FY17 EPS estimates to $8.55 (vs $9.00 prior) and consensus at $8.94.

However, the bank was not yet ready to go cold-turkey bearish on Apple, and as a result it compensated for the near term weakness by raising FY2018 projections. For FY2018, Citi estimates iPhone units/ASPs at 244 mln/$740 (OLED at 53% of total mix) vs. consensus at 242mln/$680. This drives the bank's 2018 EPS to $10.92 (from $10.60 prior) vs consensus at $10.53. The reason for Citi's cautiousness, "based on industry-wide checks, we believe the significant enhancements to the iPhone 8 OLED could experience delays as it ramps to high volume production in order to meet strong demand."

Some more from Citi:

Launch of iPhone 8 and key features: We do expect Apple to launch its iPhone 8 in September and inside this report we detail the key features. Given the 10 year anniversary, impressive features and longer replacement cycle of the installed base, we believe many consumers will desire the OLED version of the iPhone 8 which we do not believe will be available in material quantities until October and November (rather than September). We believe consensus is too optimistic for volumes in the September quarter. We believe the OLED in-screen fingerprint sensor is more difficult to mass produce with high yields thereby making October/November mass availability likely, rather than September.

Changes to our model: Our September iPhone unit estimates now reduced to 40 mln while December unit estimates increased to 89 mln. This compares with consensus at 47 mln and 83 mln respectively. For FY2017, Citi’s iPhone units and ASPs at 208 mln/$664 vs. consensus at 217mln/$658. This drives our FY17 EPS estimates to $8.55 (vs $9.00 prior) and consensus at $8.94. For FY2018, Citi estimates iPhone units/ASPs at 244 mln/$740 (OLED at 53% of total mix) vs. consensus at 242mln/$680. This drives our 2018 EPS to $10.92 (from $10.60 prior) vs consensus at $10.53.

This is what Citi expects Apple to reveal:

Below we detail out the features we expect in the iPhone 8. Because we expect a new form factor (curved glass) and meaningful enhancements coupled with the 10 year anniversary since the original iPhone launch, we believe Apple will skip the alpha S generation of the iPhone 7 (in other words no iPhone 7S but the next launch after iPhone 7 will be iPhone8). We believe the iPhone installed base upgrades will take a step up with the launch of iPhone 8 given several changes in the form factor planned. In particular we expect:

  • 3 SKUs potentially (4.7”, 5.5” LCD and 5.8” OLED). All three SKUs will have glass casing with metal frame – aluminum frame for 4.7 / 5.5 inch and stainless steel frame for 5.8" OLED model. OLED model will have very thin bezel on top and bottom and the body size will be similar or smaller (potentially ~5") than LCD 5.5” model iPhone8 Plus.
  • New colors such as red,
  • Increased camera functionality with dual front end and dual rear cameras for OLED phones.
  • 3-D sensing for facial recognition, gesture recognition and augmented reality technology also a possibility.
  • Enhanced touch sensitivity
  • Wireless charging
  • Fast charging,
  • Better battery power
  • Faster processor (A11 built on 10nm which enables faster performance and more power efficient)
  • Higher RAM memory content,
  • Invisible home button – Home button and finger print sensor will be equipped in the center or side bottom area of display, adding other sensors beneath.
  • Enhanced waterproof capabilities
  • Improved Siri/AI capability
  • Apple Pencil Compatibility
  • Updated iOS 11 – potentially Facetime for group participants

How Citi's model changes as a result of the slower iPhone sales pickup assumptions:

 

 

Model Changes

  • Every 1 million change in iPhone units' impacts quarterly EPS by ~$0.04
  • Every 1 million change in iPhone SE units' impacts quarterly EPS by ~$0.015.

We believe our existing iPhone unit assumptions remain reasonable given the lengthening smartphone replacement cycle and competitive dynamics. We assume 500 mln iOS install base pre the iPhone 8 launch and replacement rate of 32 months. Our estimates imply non iOS subscriber switch rate of ~5%, vs 10% implied during the 24 months post the iPhone 6 launch.

We believe our existing iPhone unit assumptions remain reasonable given the lengthening smartphone replacement cycle and competitive dynamics. We assume 500 mln iOS install base pre the iPhone 8 launch and replacement rate of 32 months. Our estimates imply non iOS subscriber switch rate of ~5%, vs 10% implied during the 24 months post the iPhone 6 launch.

As a result of the ongoing barrage of "unexpectedly" negative sentiment, AAPL stock is trading at LOD, down over $11 from Friday's pre-selloff level, or nearly $60 billion in market cap lost in two days.


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