The following is an excerpt from Tiernan Ray | February 8, 2016 | Barrons.com |
If it’s Monday in early February, which it is, it must be time to start thinking about Apple’s (AAPL) prospects for the rest of this year, after an 11% sell-off this year on iPhone worries.
Mizuho Securities’s Abhey Lamba this morning reiterates an Outperform rating on the shares, and a $120 price target, reminding investors that regardless of the features of the next iPhone — presumably an “iPhone 7” — there is a replacement cycle that will support sales of the device:
Lately, we have been getting a lot of questions on how to think about the iPhone 7 cycle as investors have started to focus on what incremental innovation can Apple deliver with the new phone. While it is too early to speculate what features and functionality can Apple offer with iPhone 7 hardware and iOS software upgrades, we note that there is a normal replacement cycle (due to aging of the hardware and greater demands from new software releases) that can not be ignored. Our survey indicated elongation of life of iPhones from ~20 months to ~27 months but we think it is tough to expect average life of phones to go beyond 2.5-3.0 years. Apple still has a significant installed base on pre-iPhone 6 versions and many iPhone 6 users will likely be ready for normal upgrades by 2016- end. We have modest growth assumptions for iPhone 7 over iPhone 6S cycle while we agree that success of iPhone 6 cycle will be tough to repeat.
To that end, Lamba offers that his numbers for sales this year seem safe for now, and that the data on iPhone “could start inflecting” in the June quarter.
Lamba’s colleagues in Japan are still cutting estimates for how many components they think Apple may be ordering for iPhone, he notes:
Our Japan team published a note “iPhone Production Forecast Update” today updating its forecast after checks with various component manufacturers. The team now expects total iPhone component procurement to be ~224mm for 2016, which would be down 11% Y/Y. The team is expecting ~30% Y/Y decline in 1H16 followed by ~9% rise in 2H16. As such, we expect data points from the supply chain to start inflecting sometime in 2Q16 when component manufacturers are likely to start preparing for Y/Y growth in shipment volumes.
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