By Jacob Wolinsky. Originally published at ValueWalk.
With their arch-competitor practically blowing up, the (arguably) most important company in America should get a boost – or maybe not so fast? Despite Samsung Galaxy Note 7 phones catching fire, Apple Inc. (NASDAQ:AAPL) has too experienced some alleged fire problems with their new iPhone 7. How will all this and many other factors impact earnings when the tech giant reports earnings next week? As always, we note that it is impossible to predict the future but here is a summary of what analysts are expecting from Apple’s big earnings announcement on 10/25/2016.
Analysts on Apple earnings preview
Stifel Nicholas
While we believe the potential benefit of possible Samsung Galaxy Note 7 switchers to iPhone 7+ remains an unknown, we thought it would be helpful to provide some framework of the size
of Samsung’s Galaxy Note 4 and Note 5 sales prior to the August 2016 release of the Note 7 per IDC data. While we are unable filter out sales of the Galaxy S6 Edge+ (albeit we believe volumes were small given reports of Samsung canceling the release of the Galaxy S7 Edge+), IDC data leaves us to estimate roughly 20 million Galaxy Note devices sold over the trailing 12 months and up from roughly 3 million in the year-ago period. This would equate to approximately 30% of Samsung’s smartphones sold at a price of $600 or higher.
We would expect consumers to look at comparable substitute devices in addition to the iPhone 7+ as including the Google Nexus 6P, Pixel XL (Verizon only in the U.S.), the Moto Z Force Droid Edition, Samsung Galaxy S7 Edge, Samsung Galaxy Note 5, LG V20, among others. However, we would note that Samsung is providing $100 to exchange Galaxy Note 7 devices for another Samsung smartphone.
UBS
The North American 451 Research survey asked about the Samsung Note 7 problem after the recall but before production was halted. Regarding the likelihood of future purchase, 17% of Samsung owners and 50% of non-Samsung owners say they are less likely to buy a Samsung smartphone in the future. That should help Apple’s retention rate and perhaps increase new customers, which we have forecasted down 10% each of the next two years.
Deutsche Bank
We believe initial expectations for Sept Q iPhone sales were muted given the iPhone 7’s mostly unchanged features relative to the 6s and negative supply chain data points into the launch. However, we expect Sept promotions from all 4 U.S. carriers drove stronger-than-expected initial iPhone 7 orders, pulling demand forward.
As a result, we are raising our iPhone ests to 46M in C3Q and 75M in C4Q. Given the more positive data points have been well telegraphed and shares are up 18% in the past 3 months, we believe upside is already largely reflected in expectations. Samsung’s issues with the Galaxy Note have also helped Apple sentiment, but we do not view Galaxy Note buyers as a significant opportunity for Apple, given the different ecosystems.
Goldman Sachs
We expect a solid beat-and-raise quarter on strength in the iPhone. Demand for the iPhone 7 appears to be tracking ahead of expectations, aided by (1) the one week earlier than expected launch, (2) stronger-than-expected carrier promotions in the US, China and other markets, and (3) issues with Samsung’s Note 7. Our weekly delivery tracker shows iPhone 7 supply is still not catching up to demand. Our latest survey of 1,000 US consumers, conducted last week, shows the iPhone 7 as the top consumer electronics product for the holidays in terms of purchase intentions. Also, 26% of respondents plan to buy an iPhone in the next three months, well above the 19% response in September 2015, and the highest level in a year. We model F4Q (Sep) revenues of $48.0bn (-7% yoy, guidance of $45.5- 47.5bn) and EPS of $1.71, above consensus of $46.8bn and $1.66. We forecast 45.6mn iPhone units, above the Street at 44.5mn.
Goldman Sachs on a different note:
We think Apple should launch a subscription bundle as a way to reinforce iPhone loyalty and leverage it into content. We explore an illustrative subscription bundle for $50/month (dubbed “Apple Prime”) that includes the iPhone, Apple Music, Apple TV, access to the iTunes library of TV shows and movies (some for “free”), Apple original content, and potentially live sports. This strategy would help Apple fend off smartphone commoditization and position it well vs. Amazon and Alphabet as content shifts to streaming. Our proprietary survey shows that having a subscription (e.g. Netflix) is more important for current consumer preferences than having original content; thus we think launching the subscription bundle is the first priority, which would buy Apple time while it ramps up its original content.
Morgan Stanley on recent rumors related to Macbooks
The possibility for Hon Hai to become the first source of MacBook with 60% order allocation is low. Quanta has been the primary source for MacBook assembly for more than 10 years. Hon Hai is only involved in the legacy model as MacBook is an ODM project but not an EMS project (like iPhone and iPad), which requires higher involvement in product design.
And finally, Stifel Nicholas has an options strategy
Long Strategy with Hedge: Long Stock, Buy Put Spread Collar:
Sell DEC 130 Call $0.71, Buy DEC 115/105 Put Spread $2.36
2-Month ATM Implied Volatility: 22.85 – Percentile over past 6-months: 53.7
We suggest the strategy above to have long-term exposure to the name, but, given the positive sentiment into the print, also have cost-effective downside protection should iPhone shipments fall short.
What do you think? comment below
The post Apple’s iPhone 7 Sales To Get A Boost From Galaxy Note 7 Firegate [Analysis] appeared first on ValueWalk.
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