UBS Cuts Apple iPhone Estimates 5%, But Says Brand Has 'Never Looked Stronger'

• The share price of Apple Inc. AAPL has declined 21.58 percent over the past six months, dropping to a low of $100.246 on January 6.
• Steven Milunovich of UBS has maintained a Buy rating on the company, with a price target of $130.
• Despite an apparent second cut in production, Milunovich mentioned that the company was not losing market share and that is brand and ecosystem “have never looked stronger.”

Analyst Steven Milunovich stated that a supply chain cut in December would lead to a decline in March production of 15-20 percent year on year.

However, “there appears to have been a further cut based on poor results at Catcher and Largan as well as a Nikkei article indicating a reduction in 6s units 30 percent below original plans.”

Milunovich explained that if iPhone demand had worsened below the mid-single digit gain expected in fall, it would probably be due to fewer upgrades rather than fewer new users, while highlight two concerns that emerged from UBS’ last global survey, “(1) interest in the 6s is less than in the 6 a year ago, and (2) upgrade cycles are slightly lengthening in most countries.”

According to the UBS report, the lower total units implies that the new iPhone does not have enough feature differentiation to attract adoption. Also, buyers could be opting for the iPhone 6, given that it is $100 cheaper. Although this would not impact units, it would affect ASPs.

iPhone Monitor gives the number of units at 70 million for the December quarter, although Milunovich estimates the figure to be closer to 75 million units, due to the September quarter demand being pushed out.

The FY16 iPhone estimate has been lowered 5 percent to 220 million units, while the EPS estimates for FY16 and FY17 have been reduced to $9.45 and $10.85, respectively.