BTIG Issues A Warning On Apple's Q2 Sales: The Unpredictability Of The ASP

Apple Inc. AAPL is scheduled to report its fiscal first quarter earnings report Feb. 1, but perhaps equally important to the headline numbers is the company's fiscal second quarter (March) guidance.

The Analyst

BTIG's Walter Piecyk maintains a Buy rating on Apple's stock with an unchanged $198 target.

The Thesis

Apple's second quarter guidance could come in as low as $60 billion, which is $8 billion below the consensus estimate, Piecyk said in a note. The fact is smartphone upgrade rates are still dropping and this was seen in Verizon Communications Inc. VZ's data.

Verizon reported a 7 percent drop in smartphones sold in the fourth quarter on a 7.2 percent upgrade rate. Piecyk said this happens to be the "lowest Q4 upgrade rate of the past decade" and at levels typical for the much slower June quarter. Encouragingly, Verizon's device ASP (average selling price) was $50 higher than expected and there are some signs that upgrade rates are "bottoming out for 2018."

Given the disappointing metrics seen so far, it may be safe to assume Apple will grow its iPhone unit sales but not at the rate that the consensus estimate is calling for, the analyst said. As such, a key question moving forward will be whether "Apple can hit or even come close to consensus revenue estimates in future quarters."

"Apple has shrugged off a slew of press reports and analyst notes highlighting the risk to iPhone sales," Piecyk said. "However, the unpredictability of the ASP could be the Achilles heel (or maybe slingshot) for the stock."

Price Action

Shares of Apple are up about 9 percent in the last three month, recently trading around the $172 area.

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