Apple's September Quarter Guidance Could Be Significantly Short Of Expectations

| About: Apple Inc. (AAPL)

Summary

Apple’s September quarter revenue guidance could fall $3 billion or more below estimates.

It will be determined by how many selling days the iPhone 7 has in September.

Buy-side expectations could still be too high.

Apple (NASDAQ: AAPL) will give September quarter guidance when it reports its June quarter results after the close today, Tuesday, July 26. Since the iPhone has been generating over 60% of the company's revenue it is the main determinate for what revenue guidance will be. When you analyze how many selling days the iPhone has had in the September quarter you can determine the tradeoff between revenue in the September vs. December quarters.

The Street is currently estimating September quarter revenue of $45.8 billion but that is definitely too high for what guidance will be if Apple only generates the expected $42.1 billion of revenue in the June quarter and follows what it did with the iPhone 6s. At $45.8 billion revenue would be 8.8% higher sequentially vs. the past four years revenue guidance that was down 2.9%, up 0.5%, up 2.9% and up 0.8%, respectively vs. June quarter's actual revenue.

The key will be when the iPhone 7 goes on sale

There are reports that Apple will announce the iPhone 7 the week of September 12 which is in-line with what the company has done for the past four September quarter iPhones.

Starting with the iPhone 5 in 2012 to the iPhone 6 in 2014 Apple announced its new iPhone the week after Labor Day and had the first day of sales between nine and 10 days later. This gave the company nine selling days of the new iPhone in the September quarter. This let Apple increase revenue by 2.7%, 6.1% and 12.5%, respectively, quarter to quarter.

For the iPhone 6s it also was announced the week after Labor Day but Apple allowed 16 days to go by before it started selling them. That meant there were only two days of sales in the quarter. This led to Apple's September quarter revenue guidance being only slightly higher at $49 to $51 billion vs. June quarter's actual result of $49.6 billion. Its actual revenue increase would up being up 3.8%, good but not as strong as the previous two years.

Apple needed to have a longer initial order window for the 6s so that a large portion of its first week's orders would fall into the December quarter. You can see this helped December 2015's revenue of $75.9 billion being essentially flat with December 2014's revenue of $74.6 billion. This delayed the company's first year over year revenue decline since the March 2003 quarter to the March 2016 quarter.

So the question this quarter is what quarter will Apple "sacrifice"

With the iPhone 7 not expected to drive a significant upgrade cycle, how many days between its announcement and first day of sales Apple decides on will have a substantial impact on guidance. This year the average sell-side revenue estimate for the June quarter is $42.1 billion vs. guidance of $41 to $43 billion and their September quarter projection is $45.8 billion or an increase of $3.7 billion. As you can see this is a pretty big 8.8% increase vs. last year when guidance was only a bit higher than June's reported revenue. Now it may turn out that Apple substantially beats June quarter expectations and guidance comes in at what is currently forecast but it does look like guidance could come in light to very light.

If Apple reverts to its previous model of having a nine- to 10-day order window with nine selling days September quarter's revenue will be helped but December's will be negatively impacted. This would probably allow September quarter's revenue guidance to match current forecasts. But if there are only two selling days September quarter guidance will probably fall short by at least $3 billion if not $4 billion. While I believe buy-side expectations are below the sell-side estimates they may not be this low.

September quarter revenue could decline 20% year over year

One read from Apple's guidance will be when the iPhone 7 will go on sale. If guidance is as low as I expect it could be that will indicate the iPhone will go on sale Friday, September 23. It also means that the company will experience about a 20% year over year revenue decline vs. an implied 11% drop based on current estimates which could also be below buy-side forecasts.

Disclosure: I am/we are long AAPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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