2 Risks Of Apple's iPhone 8 Launch

Brean Capital’s Ananda Baruah expects Apple Inc. (NASDAQ: AAPL) to post iPhone units for the December quarter in line with expectations, with potential for gross margin upside and against a backdrop of softer March quarter shipments.

Baruah maintains a Buy rating on the company, with a price target of $135.

December Quarter Expectations

The analyst expects “a confluence of circumstance where Street numbers perhaps need to come in just a tad more to start the year to give AAPL an opportunity to exceed estimates even in the context of "moving" visibility.”

December quarter shipments are likely to be in line with expectations at 77 million–78 million, with the mix still skewed more to the Plus+ models.

“As such, we don't see anything as of yet that would lead us to deviate materially from our original Dec Q revenue and EPS view of $76 billion and $3.11,” Baruah stated.

In addition, the analyst expects the gross margin for the quarter to beat the guidance and come in at 39 percent, driving the EPS up.

However, the March quarter is expected to be softer than expected, with iPhone unit in the range of 52 million–54 million, down from the earlier estimate of 56 million–57 million.

iPhone 8 Expectations

Baruah also pointed out that while the iPhone 8 continues to be highly anticipated, it is unclear how many iPhone 8 models will ultimately be released.

“Case in point, we believe it to be entirely possible that initially there is just one iPhone 8 model (the Plus + size), which we believe could mute overall iPhone shipments,’ the analyst mentioned.

Secondly, the December 2018 quarter iPhone shipments might not be significantly higher than in the December 2017 quarter, with Baruah estimating 80 million iPhone unit for the December 2018 quarter, as compared to 78 million for the December 2017 quarter.

“Given the lack of model clarity, along with lack of super compelling new features and, frankly, higher ASPs in the U.S given the roll-back of carrier subsidies, competition in China, and higher ASPs in India, we believe it's very possible that the CY'18 demand is more muted that what we'd all originally envisioned,” the analyst added.