FY 2015 IPhone Sales To Top 240 Million

  • iPhone is the major short term driver of Apple fundamentals and stock price.
  • We estimate iPhone unit sales of 232-240 million, implying year-on-year shipment growth of 37% - 42%.
  • Our high expectations from the iPhone segment drive our bullish outlook on the stock, which is reflected in our Apple stock analysis.

We estimate Apple (NASDAQ:AAPL) could sell over 240 million iPhones in FY 2014. iPhone sales are the major drivers of Apple revenue and earnings growth, and by corollary, Apple stock price. Our expectations from the iPhone segment drive our short term bullish outlook on Apple stock, which is reflected in our Apple stock analysis.

The impact of the iPhone on Apple financials is established by the fact that iPhone revenue contributed 60% of Apple’s LTM (last twelve months) revenues.

iPhone revenue to total revenue

Growing at a rate of 30% YoY, iPhone revenues drove Apple LTM revenue growth of 15% YoY. iPhones can be seen as strength or as a weakness depending on the way you twist the facts and your views. Some authors have termed this as a weakness, citing an over-dependence on a single product. Traditional B-school strategy class would term this as ‘putting all your eggs in one basket’; only here it is ‘all your eggs in a single product.’ While this might be true in the long term, considering that disruptive innovations have been the long term force behind the growth of Apple for over a decade, we believe this product segment will be the major revenue driver at Apple over the short term. Hence, iPhones sales assume critical importance for the Apple investor at least over the coming year (since iWatch and Apple Pay could gain traction beyond Apple FY 2015). We estimate the iPhones sales for 2015 using a regression model.

The seasonality of iPhone sales

Apple sold 169.22 million iPhones in FY 2014, registering a unit growth of 12.6% YoY. The quarterly distribution of iPhone unit sales over the last two years is shown below.

iPhone unit sales distribution

The iPhone sales are subject to the forces of seasonality, which is driven by two factors; New releases of iPhone and holiday sales. With most of Apple’s new iPhone releases taking place towards the end of Q4, iPhone sales surge in the holiday quarter (Apple Q1) and slowdown into the June quarter (Apple Q3). The pattern has been historically consistent and a fair indicator of what to expect in the coming quarters.

iPhone FY 2015 sales forecast using quarterly sales distribution

The previous change of iPhone screen size was announced in the iPhone 5, launched over 2 years ago. Not surprisingly, iPhone 5 was the most successful iPhone model, prior to the latest releases. iPhone 5 was launched in Apple’s Q4 2012 (September 2012). The impact of the launch was evident in the Q1 2013 (December 2012), which accounted for 31.8% of the iPhone sales. Another important factor to drive higher iPhone sales in 2015 will be the product refresh demand from iPhone 5 owners. Using the sales distribution of iPhones in the 4 quarters following the iPhone 5 launch as a benchmark, we can estimate FY 2015 iPhone sales as below.

iPhone sales forecast using Q1 sales
Q1 2015/FY 2015 Projected FY 2015 (in millions of units)
31% 240.22
32% 232.71
33% 225.66
34% 219.02
35% 212.77

Considering the huge popularity of the latest iPhone 6, we think a reasonable estimate would be that Q1 would come in at 32% of FY 2015 sales (Close to quarterly distribution following iPhone 5 launch), implying total FY 2015 iPhone sales of 232.7 million units.

Forecasting iPhone sales using a regression model

We also estimated FY 2015 iPhone sales using a regression model and seasonality factors. Based on the historic sales of iPhones the seasonality adjusted iPhone unit sales are summarized below.

Units, in millions Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015
iPhone units 47.789 37.43 31.241 33.797 51.025 43.719 35.203 39.272 74.47
Trendline based unit sales 35.10 37.27 39.44 41.60 43.77 45.94 48.11 50.28 52.44
Seasonal effect 12.69 0.16 -8.19 -7.81 7.25 -2.22 -12.90 -11.00 22.02
Seasonal factor 0.36 0.00 -0.21 -0.19 0.17 -0.05 -0.27 -0.22 0.42

The huge spike in the seasonal factor is a huge indicator of the success of iPhone 6. Based on the historical changes in seasonal factor and the spike caused by iPhone 6, we estimate the seasonal factors for the next three quarters. Using these estimates and Trendline based projections we arrive at the FY 2015 sales estimates for iPhones.

Quarter Seasonal factor Trendline projections (units, in millions) Seasonal adjustment (units, in millions) Sales estimate (units, in millions)
Q2 2015 0.125 54.61 6.83 61.44
Q3 2015 -0.125 56.78 -7.10 49.68
Q4 2015 -0.075 58.95 -4.42 54.53

Based on our analysis, we project total FY 2015 iPhone unit sales of 240.12 million units.

Sales (Units, in millions)
Actual
Q1 2015 74.47
Estimated
Q2 2015 61.44
Q3 2015 49.68
Q4 2015 54.53
Total FY 2015 240.12

In conclusion, Apple could sell over 232 million to 240 million iPhones in FY 2015, implying YoY shipment growth of 37%-42%. Seeing the popularity of the iPhone 6 and its impact on Q1, two scenarios could pan out in the coming quarters. Lower sales in coming quarters as pent up demand is largely exhausted or continued growth driven by stronger sales throughout FY 2015. However, given the strong sales of the iPhone in China and iOS Market share gains across major markets indicate that the iPhone sales numbers could topple the higher end of our estimates. The iPhone segment will continue to be the short term driver of Apple stock price. The strong growth in the iPhone shipments will eventually drive Apple stock price higher, which is also reflected by our bullish outlook on Apple stock, as seen in our Apple stock analysis.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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