Analyst Katy Huberty, who has been and continues to be bullish on Apple (NASDAQ:AAPL) stock, published a research note on April 20 in which she dramatically reduces the company's iPhone shipment forecast for the quarter that ends in June.
Huberty took her iPhone shipment estimates down from 40.5 million in the June quarter to just 34 million. For some context, in the June quarter of the prior year, Apple shipped just over 41 million units. If Huberty's estimates are correct -- and they seem pretty reasonable to me, given the ongoing reports of iPhone demand softness -- Apple's looking at a 17% year-over-year drop in iPhone shipments in the quarter.
The shipment decline would, of course, be partially offset by higher iPhone average selling prices thanks to the higher price tags of the iPhone 8/8 Plus compared to their predecessors, as well as shipments of the iPhone X (though I would expect the lift from the iPhone X to diminish in the June quarter compared to where it was in the prior two quarters).
Let's go over what this means for Apple's business.
This is ugly
It's starting to become clear that the current iPhone product cycle has been something of a bust for Apple. While Apple did enjoy some average selling price growth (this led to solid iPhone revenue growth in the first quarter of fiscal year 2018 and is likely to drive growth in the soon-to-be-reported second quarter of fiscal 2018), that average selling price growth amplification is wearing off, and the unit shipment story seems to be falling off a cliff.
It's not entirely clear that Apple will even be able to report year-over-year revenue growth in its iPhone business during the June quarter if units are down as significantly as Huberty predicts. Putting some numbers behind it, for Apple to offset a 17% decline in unit shipments, it'd need a solid 20% growth in iPhone average selling prices just to keep revenue flat.
Considering that during the first quarter of Apple's fiscal year 2018, it saw iPhone average selling prices grow about 14% -- and that quarter likely represented the peak quarter during the current fiscal year as the iPhone X mix was almost certainly at its highest -- that's probably not going to happen.
A bust of a cycle
While the iPhone X was a good, innovative product, the reality is that it wasn't priced low enough to drive the kind of unit demand that some investors and perhaps even Apple itself expected.
That, in itself, is fine -- it's a time-honored business strategy to offer different products at different price points, with more feature-packed products sporting larger price tags. I think the real issue was that the products that Apple had at its more traditional price points -- iPhone 8 and iPhone 8 Plus -- weren't compelling enough, particularly in an increasingly fierce competitive environment, to buoy sales.
Fortunately, it seems that Apple has a better lineup on tap for later this year. The 6.1-inch iPhone with a liquid crystal display (LCD) should be a much more competitive device at iPhone 8/8 Plus price points, the successor to the iPhone X will be better and possibly cheaper than the current model, and the rumored 6.46-inch iPhone X Plus model could help Apple boost its market share in the premium smartphone market.