Apple Earnings Preview: The iPhone Will Be King

On Apple’s earnings day, the iPhone will likely steal the show. The early read on demand for the 5G-capable device has been encouraging, and Wall Street’s estimates could prove conservative.
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The Apple Maven has kicked off the earnings season with a recap of what Wall Street expects of the Cupertino company in the holiday quarter.

Now, we move on to what I believe will be, by far, the most important topic of conversation on January 27: the iPhone 12.

iPhone will matter most

Apple’s 5G-capable smartphones were released in October, several weeks later than originally anticipated. The COVID-19 crisis wreaked havoc in the global supply chain, leading to the delay.

The timing issue is probably what will cause Apple’s results to sparkle in fiscal first quarter. iPhone sales in the previous period tanked, as depicted below (orange chart bar). But everyone, management team included, expects the product category to see growing revenues this time.

Fiscal q4 2020

Signs that iPhone demand has been strong came recently from Japan’s Nikkei Asian Review. According to the publication, Apple has “instructed suppliers to produce around 230 million iPhone handsets next year, a 30% increase from the pre-pandemic pace of 2019”.

Wall Street later confirmed the early success of the new handset device. Wedbush analyst Dan Ives says that iPhone 12 sales have already exceeded his bullish forecast. The 90 million or so units expected to be sold in the holiday quarter is about 35% higher than the estimate of three months ago.

Meanwhile, JPMorgan’s Samik Chatterjee sees high lead times for the iPhone 12 Pro. This means that demand is strong at the higher end of the product offering spectrum, which should also bode well for ASP (average selling price) and margins.

The Apple Maven’s take

All accounted for, I expect the iPhone to have a superb fiscal first quarter. Supporting the optimism are two key observations:

  • The early read on demand for the iPhone 12 seems very robust, as discussed above.
  • Apple’s “one iPhone for everyone” strategy is compelling. For example, price-sensitive consumers can still own an iPhone SE for as little as $399 in the US, or a 5G-equipped model (the iPhone 12 Mini) for only $699.

Because 50% of Apple’s total revenues in fiscal 2020 came from iPhones, strong segment performance in the holiday quarter will be crucial.

Should the company disclose 20%- or 30%-plus increase in units shipped and ASP resilience, I believe that Wall Street’s current revenue growth estimate of 11% will be easy to beat.

Twitter weighs in

As we kick off the earnings preview series, I revisit what the Apple Maven’s audience on Twitter thinks will be the most successful, game-changing new product in 2021. Here were the answers to a recent poll:

The Apple Maven on Twitter:

Clearly, most seem to think that the iPhone will, indeed, be king this year. But the M1-equipped Mac and the brand-new AirPods Max have not fallen too far behind.

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