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Why Wall Street Analysts Can't Predict Apple's iPhone Sales

By Adam Levine-Weinberg - May 29, 2016 at 11:40AM

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Apple analysts haven't been able to keep up with the sudden changes in the iPhone sales growth trend.

Amidst all the upheaval in the smartphone market in the past few years, one thing has remained constant: Wall Street analysts' inability to accurately forecast Apple's (AAPL -2.77%) iPhone sales.

Indeed, the two phenomena are related. Most analysts have been fairly cautious about predicting big changes in the trend of iPhone sales growth. However, iPhone sales growth has exhibited wide swings from year to year. If that remains true in the future, analysts' iPhone sales forecasts will probably continue to miss the mark badly.

iPhone sales growth has been volatile

iPhone sales growth has been on a clear downward trajectory over the past five years or so. It has been anything but a smooth descent, though. The timing of product launches, the addition of new carrier partners, and the perceived year-to-year improvements in the iPhone have all contributed to volatile sales growth.

Fiscal Year

iPhone Unit Sales

Year-Over-Year Growth

2011

72.3 million

80.8%

2012

125.0 million

73%

2013

150.3 million

20.2%

2014

169.2 million

12.6%

2015

231.2 million

36.6%

Data source: Apple 2012 and 2015 10-K reports. 

As the table above shows, year-over-year growth crashed from 73% to about 20% in a single year and slowed to just 12.6% in fiscal 2014 before reaccelerating to 36.6% last year. This increase in growth didn't last. In fact, Apple is on pace to record a significant year-over-year drop in iPhone sales during fiscal 2016.

Analysts follow the trend down

Apple analysts haven't had much luck in forecasting these wild swings in iPhone sales growth. During 2014, when iPhone growth seemed to be slowing inexorably, analysts predicted only a modest acceleration in growth in fiscal 2015. Even the knowledge that Apple was about to launch its first big-screen phones didn't entice many analysts to predict big sales gains.

iPhone sales growth has been very volatile over the past few years. Image source: Apple.

Thus, in Sept. 2014, most analysts expected Apple to sell 200 million or fewer iPhones in fiscal 2015, representing year-over-year growth of at most 18%. iPhone sales ultimately grew at twice that rate.

Analysts couldn't even predict near-term sales very well. In mid-September, Wall Street analysts expected (on average) that Apple would sell about 60 million iPhones in the following quarter. Apple ultimately sold 74.5 million. Even Ming-Chi Kuo -- often lauded as the most accurate Apple analyst in the world -- couldn't accurately predict iPhone sales very far ahead.

In Nov. 2014, Kuo projected Apple's Q1 iPhone sales at 71.5 million. That was only 4% short of the actual result, but the quarter was already halfway over when he made that prediction. At the same time, he estimated that Apple would sell 49.4 million iPhones in Q2, up 13% year over year. Instead, Apple sold 61.2 million iPhones in that quarter.

Analysts become too bullish

Apple's remarkable iPhone sales growth last year created very tough comparisons for fiscal 2016. As a result, most analysts (correctly) expected that iPhone sales growth would slow this year.

However, once again, analysts dramatically underestimated the extent of the trend change. Last fall, most Wall Street analysts expected that iPhone sales would grow at a low-single-digit range in fiscal 2016. Some more bullish analysts, like Katy Huberty of Morgan Stanley, expected high-single-digit growth. In reality, Apple's iPhone sales are on pace to decline about 10% year over year for the full fiscal year.

Beware future predictions

This weak track record indicates that investors shouldn't trust analysts' predictions of future iPhone sales growth. Most Apple analysts expect iPhone sales to return to growth in fiscal 2017 -- but not very rapid growth. For example, Steve Milunovich of UBS recently forecast that iPhone shipments would rise just 2% next year.

It's certainly possible that Apple's iPhone sales volume won't change much next year. But it also appears that Milunovich and many of his colleagues are wary of forecasting strong year-over-year growth next year when iPhone sales are declining sharply -- just as they didn't forecast steep declines for fiscal 2016 when iPhone sales were soaring at this time last year.

Apple's history over the past few years shows vividly how unwise it is to expect one year's sales growth to predict the next year's sales growth. Given that the iPhone installed base has grown by 80% over the past two years and that those phones will start to reach replacement age in fiscal 2017, the iPhone sales trend could quickly turn from steep declines to strong growth over the next year.

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