Estimating Apple's Record iPhone Sales in 1Q15

Apple will not only report record iPhone sales for the current quarter (FY 1Q15), but it may beat the previous quarterly high by as much as 30%. Several factors will combine to produce a perfect storm for strong iPhone sales growth in 1Q15.  I expect iPhone 6 and 6 Plus popularity, China Mobile, and a slight addition to channel inventory will lead to Apple reporting 68M iPhone sales for the current quarter, representing 34% year-over-year (yoy) growth.

Above Avalon Accuracy 

Over the past two and a half years, I have published seven AAPL earnings previews that included iPhone estimates, with an average error of 500 basis points, as depicted in Exhibit 1. For the four most recent earnings reports, my average iPhone estimate error was 275 basis points.

Exhibit 1. Above Avalon Historical iPhone Estimates 

Management Commentary

Tim Cook categorized iPhone demand as "staggering and geographically broad-based, markedly higher in every single country where we've launched compared to the iPhone 5s a year ago." Apple is unsure when iPhone demand and supply will be in equilibrium. Despite being on sale for only 12 days, iPhone 6 and 6 Plus contributed to 17% iPhone unit sale growth yoy in the U.S., 20% growth in Western Europe, 32% unit sell-through growth in Greater China despite no iPhone launch in China, greater than 50% growth in Latin America and the Middle East, and greater than 100% growth in Central and Eastern Europe.  Apple sells the iPhone in over 200,000 locations and expects to bring the new iPhones to more than 115 countries by the end of the year. 

Breakdown of 68M iPhone Estimate

I estimate Apple will sell 68M iPhones in 1Q15. Exhibit 2 compares 1Q iPhone sales for the past three years as well as channel inventory information. 

Exhibit 2. Apple iPhone Quarterly Data Matrix 

Using Apple's observed global Phone growth rates during FY4Q14 as a proxy for supply, I added 10.2M to the 51M iPhones Apple sold in 1Q14 to reflect 20% yoy growth in overall iPhone strength. I added 5M units to reflect China Mobile's impact on overall sales, which would not be reflected in 1Q14 results. Finally, I added 2M units to reflect an increase in channel inventory to get Apple within its previous 4-6 week channel inventory target range (management increased the range to 5-7 weeks). The resulting 68.2M iPhones sold estimate implies 34% yoy growth, which would be the strongest quarterly growth in over two years. 

 

This report should be used to understand where I stand on iPhone 1Q15 sales, especially when I discuss the item in my daily email, AAPL Orchard, or in other Above Avalon reports. Over the coming months, if new data becomes available, I will update my estimates accordingly. This report is not meant to be used as investment advice. Downside risks to my estimates include: iPhone supply issues and weaker-than-expected customer demand. Upside risks to my estimates include: Stronger-than-expected customer demand, especially in China.  This report was produced by Neil Cybart on November 25, 2014. 

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