Sales of Apple's (NASDAQ:AAPL) iPhones may come in ahead of analyst consensus this quarter, according to UBS analyst Steve Milunovich (via Barron's). Milunovich says that he expects Apple to ship 48 million iPhones during the June quarter, which is reportedly ahead of a consensus of 45 million units and above his prior estimate of 43 million units.
In tandem with this upward revision of his iPhone shipment estimates for the quarter, Milunovich boosted his revenue and earnings per share estimates for the quarter to $51.83 billion and $1.93 from $48.61 billion and $1.80, respectively. These are above analyst consensus of $48.20 billion and $1.74, respectively.
I'd like to dig a little bit deeper into these estimates and what they might suggest about Apple's business.
Some historical context
In the second quarter of Apple's fiscal 2014, the company reported shipping 43.72 million iPhones. Then, in the third quarter of fiscal 2014, Apple sold 35.2 million iPhones -- a sequential decline of about 19.5%.
Last quarter -- Apple's second quarter of fiscal 2015 -- Apple reported shipping 61.17 million iPhones. If analyst consensus is correct, then investors should expect a 26.43% sequential decline in iPhone unit sales in the current quarter. If Milunovich's estimates are correct, however, then Apple should see "only" a 21.5% sequential decline in iPhone unit shipments.
You might notice that this expected sequential decline is steeper than it was in the year-ago period. Is this potentially a bad sign?
Let's talk about channel inventory
A while back, Apple told investors that it would be raising its target channel inventory range for its iPhones from four to six weeks to a range of five to seven weeks. Apple said back on its January 2015 earnings call that it saw a 200,000 unit decrease in iPhone channel inventory in the quarter, leaving the company below said target.
During the following quarter, Apple reported increasing its iPhone channel inventory by a million units, which Apple CFO Luca Maestri said left the company at the "low end" of its new channel inventory range target.
If we go back to a year ago, former Apple CFO Peter Oppenheimer said at the time that the company had gotten within its four- to six-week channel inventory range. In the second quarter of the company's fiscal 2014, then-newly appointed CFO Luca Maestri again reported that Apple was within its target range.
What does this all mean?
The idea here is simple: during the first and second quarters of Apple's fiscal 2014, Apple had already hit its desired channel inventory targets. This means that there was no what is known as "channel fill" going on during these quarters.
In contrast, during Apple's most recent quarter in which it shipped 61.17 million iPhone units, Apple was actively trying to fill the channel with additional inventory as it had exited the prior quarter below its target range.
Since Apple exited last quarter at the "low end" of its channel inventory target range, the company isn't likely to ship the additional units this quarter that would be associated with such channel inventory fill. This means that the sequential drop in going from Apple's fiscal second quarter this year to its fiscal third quarter should be steeper than it was last year.
Milunovich raises full-year EPS estimate
Milunovich, in addition to raising estimates for the quarter, also reportedly raised his full-year earnings per share estimate from $9.04 to $9.17. This represents about 2.12% upside to consensus, which currently sits at $8.98 per share.
If Milunovich is right, this wouldn't be a game-changer for Apple, but I'm sure long-term investors would appreciate any and all out-performance that the company can deliver.