- 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.
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.
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)|
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|
|Trendline based unit sales||35.10||37.27||39.44||41.60||43.77||45.94||48.11||50.28||52.44|
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)|
Based on our analysis, we project total FY 2015 iPhone unit sales of 240.12 million units.
|Sales (Units, in millions)|
|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.