Stifel expects in-line results for Apple Inc.’s (NASDAQ:AAPL) F2Q17 – retains its $52.4B / $1.96/sh. estimate (Street: $52.995B / $1.99). Apple guided F2Q17 at $51.5-$53.5B with a 38%-39% GM% and $6.5-$6.6B opex. The firm is also leaving its F3Q17 estimates unchanged at $44.7B / $1.54 (Street: $45.6B / $1.63) to reflect a muted expectation ahead of the iPhone 8 product cycle. It is increasing its C2017 and C2018 estimates to $230.1B / $8.99 and $250.2B / $10.42 from $223.4B / $8.71 and $235.5B / $9.60 to now reflect 224.7M and 250.6M iPhone shipments, respectively (vs. prior 215.7M and 230.5M estimates). This reflects iPhone shipments at +4% and +11.5% y/y in C2017 and C2018.
With the clear focus being on the upcoming iPhone 8 cycle, in this report the firm provides an iPhone ship summary based on using its iPhone active installed base estimates (it currently estimates 730M) historical shipment trends and the initial ramp of next-gen iPhone shipments over the following four quarters – leaving the firm particularly focused on the potential upside set-up into the Dec ’17 quarter (albeit Apple’s product cycle velocity attributes should be considered). For example, Stifel est. that the newest gen iPhone shipments (upgraders + new iPhone subs) accounted for 13%, 12%, and 8% of Apple’s pre-cycle installed base in 2014, 2015, and 2016 – using IDC’s iPhone ship estimates. The next-gen iPhones also equated to 70%, 72%, and ~67% of Apple’s total iPhones shipped in these December quarters. In the send-able model below the firm shows that an 11% ship-to-installed base level and a ~70% new iPhone contribution to total ship would leave the firm to consider a 90M+ total iPhone ship level into the Dec '17 quarter (vs. its updated 84.8M estimate; Street: 82M).
While the firm thinks Apple’s significantly easier China comps are well known / considered (i.e., Jun & Sept 2016 quarter iPhone ship est. at -33% y/y), it believes the significant difference in iPhone mix within China could prove to be underappreciated amid a favorable iPhone 8 cycle – i.e., focus on the firm’s blended iPhone ASP ($/unit) estimate at flat y/y in the Dec ’17 quarter. The mix of iPhone 7 Plus shipments for the Sept + Dec 2016 quarters totaled ~58% of total iPhones shipped in Greater China – significantly higher than the total 40% mix and compared to a 36% ship contribution in the U.S.