Reading Samsung's Tea Leaves To Predict iPhone Demand

| About: Apple Inc. (AAPL)

Apple's (NASDAQ:AAPL) shares resumed their roller coaster ride on April 19 declining $21 to $587.44, down 3.4% for the day. The shares are down over $56 or 8.8% from its $644 intra-day high on April 10. This was triggered by Verizon announcing that it had sold 3.2 million iPhones in the March quarter vs. 4.3 million in the December quarter or 26% fewer iPhones. Additionally an analyst cut his June and September quarter iPhone shipment estimates by 13% and 22% respectively.

Verizon accounted for about 11.6% of Apple's December quarter's iPhone sales and it is not surprising that there was large decline due to the March quarter following the holiday season and Apple's December quarter having 14 weeks.

I believe that Samsung's (OTC:SSNLF) positive pre-announcement on April 6 combined with HTC's April 16 and Nokia's (NYSE:NOK) April 11 negative pre-announcements are a better indication of Apple's iPhone sales.

Samsung announced that its March quarter sales were 5% lower (at the mid-point of updated guidance) vs. the December quarter. More importantly the company said that its operating profit increased over 9% from the December quarter. Since smartphones are probably its highest margin product line vs. memory chips, flat panels and flat-screen TVs it indicates that Samsung's smartphones did very well. One of the analysts who follows Samsung estimates that the company sold 44 million smartphones in the March quarter vs. 36 million in the December quarter.

If Apple can maintain its December quarter market share (and I don't believe there have been any major negative market share shifts against Apple vs. the last quarter, especially since the iPhone became available in China in the March quarter) it looks like Apple could substantially exceed the sell-side analysts estimate of about 30.5 million smartphones. I believe the buy-side analysts estimates are in the 34-35 million range.

Assuming that Apple's iPhone maintains its market share relationship to Samsung and adjust for the March quarter having 13 weeks Apple could have sold 41 to 42 million iPhones. To put in a bit of a buffer so that one doesn't get too excited lets bring the iPhone number down to 39 to 40 million.

That would translate to an additional $4 billion above my revenue estimate bringing it to a total of $43 billion, not far from last quarters $46.3 billion in revenue. EPS could then approach if not exceed $12 vs. the Street at $9.90 and guidance of $8.50. This would put Apple on track to earn $50 this year.

Disclosure: I am long AAPL.

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