iPhone 8 Launch Lines Short as Expected

Short line at the Apple Uptown Store in Minneapolis, MN on launch day at 11am.

Lines for Apple products are short, as expected. This year’s iPhone 8 launch line at Apple’s flagship 5th Avenue store in NYC was 275 people vs 400 for the iPhone 7, 650 for the iPhone 6S,  and 1,880 for the iPhone 6. Overall, this line count is as to be expected for two reasons:

  1. Consumers continue to trend toward pre-ordering new devices to avoid long launch day lines.
  2. This year’s iPhone upgrade is split between the iPhone X and iPhone 8.

Remain comfortable with Street iPhone estimates for FY18. These shorter lines don’t change our expectation that iPhone unit growth for this next cycle will be 9% versus 3% for FY17. The reason we remain optimistic about the step up in iPhone growth over the next year is the large pool of old iPhones that need to be upgraded. Specifically, we estimate the number of active iPhones that will be three years old or older to exceed 300M over the next year. This is greater than the ~245M iPhone units currently modeled by the Street in FY18.

iPhone 8 Launch Day Line Recap. We have counted iPhone launch day lines since the launch of the iPhone 3G in 2008. In the US, we visited five stores including the 5th Avenue store in NYC, and four in Minneapolis. For stores where we have y/y data, the iPhone 8 lines were down 32% on average vs iPhone 7 lines last year with the 5th Avenue store down 31% y/y (table below). As a point of reference, last year for the iPhone 7 launch, lines were down 23% from the iPhone 6S launch.

Surprise of the day – people waiting for Apple Watch + LTE. Excluding the 5th Avenue store, we found about half of the people in line were waiting for the Apple Watch + LTE. This surprise mix of Apple Watch buyers in today’s lines is likely attributed to the long (3-5 week) lead times for Apple Watch + LTE. Despite the negative reviews around Watch + LTE (battery life and network connectivity) we remain comfortable in our estimates that the Watch + LTE will add 10M Watch units over the next year (accounting for 38% of our Watch estimates for FY18). We did not interpret the greater number of people waiting in line to buy Apple Watch as a sign that demand for Watch is greater than our model reflects.

Noise in this year’s data. Our line data is less comparable to previous years because Apple Watch buyers accounted for 19 of 42 survey respondents. We did not conduct surveys at the 5th Ave. store, so we don’t have color on the largest line sample.

Details on this year’s line survey.  The biggest takeaway in our survey is the rebound in the percentage of iPhone 8 Plus buyers, accounting for 57% of survey responses. This compares to 46% of iPhone 7 launch day buyers opting for the larger form factor.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Posted in Apple  • 

Survey Suggests Higher Demand for iPhone 8 and X; but Brace for Short Lines

Survey suggests better than expected demand for iPhone X and iPhone 8, but lines will be shorter tomorrow.  This week we surveyed 388 consumers in the U.S. across all demographics and found that of those planning to buy an iPhone in the next year, 25% plan on purchasing an iPhone X and 39% and iPhone 8 and 8 Plus. We are modeling for iPhone X to be 20% of units over the next year, and iPhone 8 and 8 Plus to be 25% of units over the next year. Said another way, the survey suggested 64% of iPhones in the next year will be either the iPhone X, iPhone 8, or 8 Plus, compared to our current model of 45%. While we are encouraged by this survey, we are keeping our iPhone mix estimates unchanged to err on the side of conservatism.

Expect shorter lines this year. We will be making our annual pilgrimage to a handful of Apple retail stores to count lines and more importantly, survey people regarding their intended purchases. The lines have been declining over the past two years. For example, the line at the 5th Avenue New York store declined from 1,880 people in 2014, to 650 in 2015, and 400 last year. Given the most current version of the iPhone is split between the iPhone X and iPhone 8, and more people are purchasing their phones online or through the iPhone upgrade program, our best guess is that lines will be less than half as long as we observed in 2016. In addition, the 5th Avenue New York store is undergoing major renovations, and has been moved to an adjacent building which will likely impact the 5th Avenue line count. These shorter lines don’t change our expectation that iPhone unit growth for this next cycle will be 9% versus 3% for FY17.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Little Change in iPhone 8 & Watch Lead Times Over Weekend

Friday morning (Sep 15) Apple started taking pre-orders for the iPhone 8 and 8 Plus. At around 11AM ET we spot checked availability of those phones in the U.S. At the time, Apple was quoting 1-2 week lead times for most configurations. On Sunday afternoon (Sep 17th) we took a closer look at the lead times and found little change from Friday. Our Sunday afternoon lead time checks in other countries quoted similar 1-2 weeks shipping expectations. See details below.

Comparing iPhone 8 & 8 Plus Lead Times to Past Launches. The pre-order lead times are playing out as we expected with similar to the lead times as the smaller size iPhone’s over the past three years, but shorter lead times than the larger Plus sizes. For the smaller screen sizes, last year we found that average iPhone 7 lead times of 1-2 weeks with five days to launch (same days to launch window as our checks today), which compares to 7-10 days for the iPhone 6 and iPhone 6S. We note the 6S had a slightly longer time between announcement and launch, thus more time to build inventory to handle initial demand. For the Plus sizes, last year we measured the iPhone 7 Plus lead times 5 days before launch at 2-3 weeks on average compared to 3-4 weeks for both the iPhone 6 Plus and iPhone 6S Plus. Separately, we expect the iPhone 8 & 8 Plus will account for about 25-30% of iPhone units over the next year and expect the iPhone X to account for about 20% of units, so the demand for the next iPhone cycle is more or less equally split between two models which would likely lowers lead times.

 

Watch + Cellular Lead Times. We did similar Watch + Cellular spot checks on Friday morning and noted little change on our detailed Sunday, Sep 17 checks.  All models quoted 3-4 week lead times with the one exception (Silver Aluminum Case with Seashell Sport Loop which was 4-5 weeks). Apple Watch accounts for 3% of Apple’s overall sales, but we believe adding cellular (despite the $10 per month up data up charge) will add about 2% to Apple’s overall revenue growth rate for FY18. We’re modeling for 15% revenue growth in FY18, inline with the Street.

Posted in Apple  • 

AAPL Model Update: Factoring In iPhone X Delay, Higher ASP’s and Apple Watch a Net Positive

Following Apple’s product event yesterday, we have updated our AAPL financial model, which can be viewed here.

iPhone X Delayed, ~10M Units Pushed Out; Full Year Units Unchanged

iPhone X will ship on November 3rd, which is roughly six weeks after we had previously expected. We do not anticipate the delay will affect total iPhone demand for FY18, and are maintaining our 237m unit estimate (up 9% y/y), compared to the Street at around 240m.  To factor in the iPhone X delay, we moved 10m units out of the Sep-17 and Dec-17 quarters into Mar-18 and Jun-18. In FY18 we expect iPhone X will account for 20% of all new iPhone sales (we’re modeling the iPhone 8 and 8 Plus to account for 26% of units)

Historically iPhone Buyers Have Been Willing to Pay Up. Investor concern following yesterday’s event revolves around consumers’ willingness to pay a higher price for the iPhone X. Last year Apple’s flagship iPhone (7 Plus) started at $769 compared iPhone X at $999, or a 30% price increase. The best price increase analog was the 15% price increase from the iPhone 5S to the iPhone 6 Plus in 2014. At that time investors expected adoption of the iPhone 6 Plus to be limited due to the 15% price increase, but the opposite happened and the iPhone 6 Plus eventually accounted for over 50% of units pulling overall iPhone ASP’s up 12% during the iPhone 6 & 6 Plus cycle. This time the ASP jump is bigger, and the increase in screen size is smaller, so we’re expecting 20% of units to be the higher priced versions (15% the 64GB version and 5% the 256GB version).

Our Expectations By iPhone SKU. The table below outlines our iPhone estimates by SKU.

Changes To iPhone Estimates. High level summary of our iPhone unit adjustments is in the bullets below:

  • Decreased iPhone unit shipments in Set-17 qtr from 49.1M to 47.3M
  • Decreased iPhone unit shipment in Dec-17 qtr from 84.5M to 77.5M
  • FY18 iPhone unit shipments unchanged at 237.7M

Raising Apple Watch Unit Growth In FY18 To 59% From 9%. With the introduction of LTE to the Apple Watch Series 3, as well as reduced price of the Series 1, we have become meaningfully more bullish on demand for these products. Near term, we have increased our unit assumption from 3.5M to 5.1M, implying 60% y/y growth. Looking longer term, we believe this announcement will add ~10M incremental Apple Watch units in 2018, implying Apple Watch sales grow 59% y/y to 26M in FY18. Due to the reduced price of the Series 1 we have lowered our Apple Watch ASP to imply flat y/y growth in FY18, but due to the higher expected sales we are now modeling the company to record $11.7B (4% of sales) Apple Watch sales in 2018.

Consolidated Income Statement Adjustment. Following these adjustments, we have modestly lowered our Sep-17 revenue estimates from $52.1B to $50.6B due to the delay for iPhone X, but still anticipate revenues to be in the company’s previously guided range ($49 – 52B). Because of lower revenues our Sept-17 EPS assumption has been lowered from $1.94 to $1.86. Looking into FY18, our iPhone unit shipments are unchanged, but due to higher ASPs, as well as stronger demand for Apple Watch we have taken our FY18 revenues up by $9B. Our new revenue estimate is implying 15% year/year growth, which is slightly above the Street’s 14% estimate. High level model changes are below.

  • FY18 revenue estimate of $261B vs $252B prior estimate
  • FY18 EPS assumption of $10.81 vs. 10.46 prior estimate

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Quick Take: iPhone X Hints at a Post-Smartphone World

Apple introduced iPhone X as the future of the smartphone; and for good reason. The iPhone X has advanced 3D-sensing, display, camera, and augmented reality technologies that have never been available in consumer devices. These technologies solidify the platform on which Apple will retain and grow its user base for the next decade.

Impact of iPhone X. iPhone X will ship on November 3, roughly six weeks after we had previously expected. We estimate that some users (about 20% of all new iPhone buyers) will opt for the iPhone X over iPhone 8 and previous models. The ship date likely won’t have a material impact on the number of units sold, but will push some unit sales into the March quarter. Ultimately, roughly 10% of our previous iPhone unit sales in the December quarter will be iPhone X sales that are shifted into the March quarter.

AR Hints at a Post-Smartphone World. But we’re looking beyond the smartphone, wondering how the core technologies shown today will help Apple enable a post-smartphone world. To be clear, we expect the smartphone to remain a dominant computing platform for many years, but a transition to the future of computing is clearly underway. Underneath features like the new iPhone X unlock method, called Face ID, is a set of revolutionary 3D-sensing technology that will enable entirely new experiences with – and through – our devices. As Jony Ive said, “[Augmented Reality] will redefine what’s possible.”

“[Augmented Reality] will redefine what’s possible” – Jony Ive, Chief Design Officer, Apple

We were hoping to see advanced AR sensors on both the front and the rear of the new device, but the new, advanced sensors are primarily relegated to the iPhone X’s front. This means that the AR capabilities Apple introduced today will be, for the most part, accessible to and backward compatible with iPhones dating back to the 2015 iPhone 6s. Ultimately, this decision will accelerate the adoption of AR and the future of computing.

Freeing You From Your iPhone. Apple’s other big announcement, Apple Watch Series 3 with LTE connectivity, also shows us where the company is positioning itself to win in a post-smartphone world. Apple pitched Apple Watch Series 3 as a device that frees you from your iPhone. Stepping back, the capabilities of the device are astounding, and they hint at a future more dominated by wearable computing devices that enable most of what we can do with our smartphones today, and more.

Impact of Apple Watch. With the introduction of LTE to the Apple Watch Series 3, and the reduced price of the Series 1, today’s announcements could add 10M incremental Apple Watch units in 2018, implying Apple Watch sales of 26M units in FY18. This would bring our estimate for Apple’s overall revenue growth from 12% to 14% in FY18, in-line with street estimates.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.