Yesterday, Apple (NASDAQ:AAPL) took a rare beating, falling 3.44% in regular trading. Although several news pieces stood out, with Canaccord's Mike Walkley slashing iPhone estimates as well as earnings estimates for 2012 being the most notable, but Verizon's (NYSE:VZ) hard data on its Q1 iPhone sales was certainly also relevant.
Verizon said it sold 3.2 million iPhones in the quarter, versus 4.2 million in Q4 2011 (FQ1 for Apple). The 4.2 million iPhones Verizon sold in the previous quarter represented 11.35% of all the iPhones Apple sold in the same period, so if Verizon turns out to be a good sample, this would put total iPhone sales in this quarter at around 28.2 million. Therein might lie the problem. The present Street consensus is for 30.5 million iPhones sold, and the iPhone is by far the most important product for Apple. The iPhone represented 52.7% of FQ1's revenues, but as much as 3/4ths of the gross margins. A two million miss on iPhone would need the iPad to sell 3 million units over expectations just to compensate. iPad consensus for the quarter stands at 13 million units.
Some of this seasonal weakness is obviously clearly expected; the Apple consensus revenue estimates for the quarter that just ended stood at $36.64 billion versus the $46.33 billion Apple had in FQ1. This means a 20.9% seasonal drop in revenues is already baked in, and that's in a quarter that should include a boost from the new iPad (launched on March 15). As one remembers, the iPad sold 3 million units in just 3 days, so the 13 million unit consensus seems achievable.
Two other factors to consider: One is that Apple introduced the iPhone into more markets during the quarter, including China. This might mean Verizon won't be as good a sample and will underestimate the real iPhone sales. The other, however, is that the 30.5 million iPhones Street consensus might also underestimate the true Street expectation, or "whisper number", with many analysts going for much higher sales (were this to happen, Apple would also clear earnings and revenue estimates by far).
If the drop in sales registered by Verizon is a representative sample for the overall iPhone sales, then the iPhone would be tracking somewhat below Street consensus. With the iPhone being so relevant for Apple's earnings, this raises the specter of an earnings miss, which wouldn't sit well with the kind of speculation Apple stock saw recently. Some cautiousness seems warranted.