Analysts Watching Apple's Q2 Earnings For Signs iPhone SE Is Cannibalizing Sales From iPhone 6

Bernstein’s A.M. (Toni) Sacconaghi, Jr. expects Apple Inc. AAPL to report relatively in-line results when it reports it FQ3 earnings on July 26.

Sacconaghi maintained an Outperform rating on the company, while lowering the price target from $135 to $125.

FQ3 Expectations

The analyst expects the company to report 41 million iPhone units, with revenue of $42.8 billion and EPS of $1.42, in-line with Apple’s guidance range.

Although revenue is expected to marginally beat the consensus, Sacconaghi expects a sequential revenue decline of 15 percent, slightly better than the historical average decline seen in the past four years in FQ3, “driven expected demand elasticity from the release of lower-priced iPhone SE at the beginning of the quarter, offset by channel inventory drawdowns.”

China is likely to have been weak during the quarter, while iPhone unit sales are expected to beat the consensus.

iPhone Unit Expectations

“We expect channel inventory to decline 2M units from FQ2's level of 21.3M units, with a decline in iPhone 6/6S inventories of 4M units offset by a 2M channel inventory build of iPhone SE inventory due to the timing of the product release,” Sacconaghi stated.

However, the analyst expressed concern regarding the impact of the new iPhone SE on Apple’s financials, including ASPs.

Sacconaghi explained that iPhone unit shipments of 42 million or higher would be encouraging, while 39 million or lower would be a cause for concern, pointing to either the iPhone SE cannibalizing iPhone 6S/6 or limited demand elasticity.

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