We Remain Bullish On AAPL Into The iPhone 6 Cycle, Says RBC Capital

In a research report issued today, RBC Capital analyst Amit Daryanani maintained a Buy rating on Apple (NASDAQ:AAPL) with a $110 price target. Given focus around the iPhone 6, the analyst provided a detailed analysis on P&L implications if AAPL ships 70M+ units of the new product in CY14.

Daryanani noted, “We remain bullish on AAPL into the iPhone 6 cycle. Multiple data points – Supply chain checks, off balance sheet commitments and our survey work show material H2:14 upside vs. current expectations. In this report, we outline scenarios around EPS upside should AAPL end-up selling 75M+ iPhone 6 units in H2:14. At 75M units, the EPS upside would represent 24c to Dec-14 estimates (+10%). Finally, gross-margins bear monitoring, but we think analysis to 2012 margin’s trajectory is flawed as in 2012 AAPL saw headwinds from both iPhone yield issues and from iPad mini launch.”

The following bullets contain some highlights from this report:

  • Supply Chain Perspective: Most supply chain data is pointing towards AAPL gearing up to ramp 70-80M iPhone 6 units across the two form factors (4.7”/5.5”). This is a notable uptick from last year when the supply chain ramped 50-60M units. We think this iPhone cycle will be more material then prior ones largely because an increased screen size should drive a material upgrade cycle and position AAPL to pick-up share vs. android ecosystem on the high-end.
  • Upside Potential From 75M+ iPhone Sell Through: In this scenario we estimate AAPL will sell 15M units in Sept-qtr (10M 1st weekend of launch) and remainder ~60M units in Dec-qtr. This would imply Dec-qtr EPS upside of 24c (+10%). Our assumption is gross-margins remain relatively stable as Sept-qtr guide of ~190bps q/q margin degradation may capture majority of the anticipated yield headwinds.
  • iPhone Base Case: According to our current assumptions, Apple will sell roughly 65M iPhone 6 units in H2:14 (15M in Sept, 50M in Dec). Our Dec-qtr expectation of 56M units represents +10% y/y growth. With an assumed 45% gross and 32% operating margin (for iPhones) this would represent ~$1.36 in Apple iPhone EPS contribution for the Dec-qtr.

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Amit Daryanani has a total average return of 10.3% and a 67.5% success rate. Daryanani has a 17.4% average return when recommending AAPL, and is ranked #288 out of 3261 analysts.





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