Apple IPhone SE On Track To Hit Sales Of 9 Million Units This Year

Source: Alex Cho, UBS, Apple

Even after including the iPhone SE with revised estimates for the full-year, I arrive at a full-year average ASP of $646.26. The figure differs from the Q2’16 reported ASP of $641.82 as the impact from iPhone SE launch and drop in 6S/S+ demand drove a significant reduction from Q1’16 to Q2’16 ASPs (Apple reported an ASP figure of $690.50 in Q1’16). I anticipate iPhone SE to have less than half a percentage point impact on gross margins (perhaps less). To be more specific, it was the overbuild of iPhone 6S/S+ in Q1’16 that inflated ASPs for a short duration. Furthermore, I anticipate the Apple iPhone segment to contribute $141.587 billion this year, which is higher than my prior estimate of $137.242 billion. I plan to do a full-year model revision in a future article.

If the unit-mix shift was more severe, the impact on margins would be far more noticeable. I believe that SE demand will continue to tick higher as we progress through FY’17, but it’s hard to derive reliable estimates given the timing of the iPhone 7 launch, and the potential discontinuation of the iPhone 6 line-up. But if SE demand proves to be more robust, I wouldn’t mind revisiting my financial model.

Conclusion

Going forward, I believe the impact from MacBook Pro refresh will be the needle mover in future quarters as the PC market is long overdue for a major refresh. Recent channel checks imply significant build-up for various PC launches in the 2016 time frame. Since PCs have lower gross margins for Apple, I believe that recent gross margin pressure came from lower iPhone-mix paired with higher concentration in Mac segment sales. I believe that if the PC segment surprises (which has the lowest margins out of its consumer electronic categories), the gross margin figure will balance out to around 38% this year, or the low-end of Apple’s range. I’ve embedded conservative gross margin figures when compared to many other analysts, so I can’t imagine things getting worse for full year gross margin.

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Disclosure: I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours. I am not an ...

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