Morgan Stanley Sees Apple's iPhone Demand Tracking Ahead Of Schedule This Month

Morgan Stanley’s Katy L. Huberty maintained an Overweight rating for Apple Inc. AAPL, with a price target of $135, saying that March iPhone demand was tracking ahead of expectations, with China delivering the strongest growth.

Extrapolating Data Through End-February

Extrapolating data from Morgan Stanley’s AlphaWise iPhone Tracker through end of February suggests demand for 56.5 million units of iPhones for the first quarter, which is significant higher than the estimated 49 million units and management’s guidance of at least 52 million units. Investors had been skeptical of Apple being able to reach this implied guidance, analyst Katy Huberty said.

“Apple exited last quarter "slightly above" the low-end of its 5-7 week iPhone channel inventory target. Any inventory fill for Apple's indirect distribution channels would put further upward pressure on estimates,” Huberty wrote.

The analyst mentioned that every 1 million iPhone shipment added $640 million in revenue and $0.04 in EPS to the March quarter estimates of $50.9 billion and $1.94, versus consensus expectations of $52.1 billion and $1.99, respectively.

China

“China remains the country with the strongest growth in our tracker…[O]ur data indicates positive Y/Y and Q/Q growth through the month of February. Growth improved in most regions as Y/Y compares begin to ease, a promising sign heading into the rest of the year when compares get even easier,” Huberty commented.

Asia Supply Chain

Supply chain revisions seem to have bottomed, and 40M builds are estimated for both the March and June quarters, the Morgan Stanley report noted.

4" iPhone

The 4" iPhone could provide an additional boost. While the new iPhone could begin shipments before the end of the March quarter, the bulk of the contribution is likely to come in the June quarter, Huberty mentioned.