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HomeMarketApple iPhone Estimates Keep Falling. What It Could Mean for Demand.

Apple iPhone Estimates Keep Falling. What It Could Mean for Demand.

Covid-19 restrictions have affected iPhone production at a major plant in China.

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Nic Coury/Bloomberg

Wall Street’s iPhone sales estimates for the December quarter continue to ratchet lower, while focus shifts to whether unfilled demand will result in delayed purchases—or lost sales.

On Wednesday, Morgan Stanley analyst Erik Woodring cut his unit sales estimate for the quarter for the second time since
Apple
(ticker: AAPL) warned last month that Covid-related restrictions were impairing operations at the primary assembly facility for the iPhone 14 Pro and Pro Max in Zhengzhou, China operated by Hon Hai, also known as
Foxconn.

Woodring now expects Apple to ship 75.5 million iPhones in the December quarter, down three million from his previous forecast. According to FactSet, the Street consensus forecast sits at 82 million units, which suggests there could be more analyst cuts ahead. Other analysts have brought down their unit forecasts for the quarter by 10 million to 20 million units. 

Woodring notes that to be conservative; he isn’t changing his March quarter forecast of 56.5 million units, which is a tad below consensus at 58 million. The analyst says it is more likely demand will be deferred than destroyed, but he adds that “more thoroughly de-risking estimates today is the prudent decision considering the uncertainty of the production situation in China.”

Adding complexity to that analysis is uncertainty around how softer consumer spending will affect iPhone sales in 2023.

For the December quarter, Woodring now sees Apple posting revenue of $120.3 billion and earnings of $1.88 a share, well below consensus at $124.7 billion and $2.02 a share.

Woodring says the revised iPhone forecast assumes that the Zhengzhou plant doesn’t return to full production until early 2023, and that the company’s other plants can’t materially offset the slower December production in Zhengzhou.

“By now it’s well understood by investors that the December quarter will be challenged due to iPhone supply shortages, and therefore the most important near-term debate is really how much of the lost demand from December is perishable vs. deferrable,” Woodring writes.

“We believe demand for the iPhone 14 Pro/Pro Max remains solid, supporting the view that lost demand in December is more likely to be deferred into March than destroyed,” Woodring adds. “The current setup feels very similar to early 2020 when iPhone production in China was first shut down due to Covid.”

He notes that during that period, Apple’s stock initially underperformed as analysts cut March quarter expectations due to fears of supply shortages and iPhone demand destruction. “But in reality, Apple’s reported results ended up outpacing Street expectations as demand remained more durable than feared,” he writes. “We believe a similar setup could be at hand.”

Woodring maintains his Overweight rating and $175 target price on the stock.

Apple is down 1.2% to $141.20 in recent Wednesday trading.

Write to Eric J. Savitz at eric.savitz@barrons.com

Credit: marketwatch.com

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