Apple iPhone Projection Update Based On Verizon Results

| About: Apple Inc. (AAPL)

On Thursday morning Verizon (NYSE:VZ) announced that it had activated 2.7 million Apple (NASDAQ:AAPL) iPhones in the June quarter. This was down 500,000 from the 3.2 million in the March quarter (down 16% quarter over quarter) and an increase of 400 thousand from last year's June quarter (up 17% year over year). This was better than my original estimate of 2.2 million Verizon activations.

This has a positive ripple effect on my Apple iPhone model, since it raises not just my Verizon number, but increases the estimate for AT&T. I had been projecting 2.8 million AT&T iPhone activations (down 35% quarter over quarter), but since AT&T has been activating 1.34 to 1.77 times the number of Verizon activations the past three quarters, I am raising my AT&T iPhone projection to 3.2 million (down 26% quarter over quarter), which would be a ratio of 1.19.

4S

March '11

June '11

Sept '11

Dec '11

March '12

June '12

AT&T (mil. units)

3.6

3.6

2.7

7.6

4.3

3.2

'% of Apple

19.4%

17.7%

15.8%

20.5%

12.3%

10.2%

Ratio to Verizon

1.35

1.77

1.34

1.19

'Q/Q %

0.0%

(25.0)%

181.5%

(43.4)%

(25.6)%

Y/Y %

19.4%

(11.1)%

Verizon (mil. units)

2.2

2.3

2.0

4.3

3.2

2.7

'% of Apple

11.8%

11.3%

11.7%

11.6%

9.1%

8.6%

'Q/Q %

4.5%

(13.0)%

115.0%

(25.6)%

(15.6)%

Y/Y %

17.4%

Click to enlarge

I am keeping my 31.5 million iPhone projection, since Verizon is only about 8% to 9% of total iPhone sales. This does make me feel more comfortable with my estimate. And of course, it means that there is upside if international sales are strong, since by not changing the total number, my international estimate is forced down. The Verizon and AT&T model changes produce international sales of 24.6 million (down 6% quarter over quarter) vs. my original estimate of 25.5 million, or down 2% quarter over quarter.

Note that every 500,000 iPhone sales generates about $325 million in revenue and $0.10 in earnings.

Million units

Mar. '11

June '11

Sept '11

Dec '11

Mar. '12

June '12

US

5.8

5.9

4.7

13.7

9.0

6.9

'% US

31%

29%

27%

37%

26%

22%

Y/Y %

55%

17%

'Q/Q %

2%

(20)%

191%

(34)%

(23)%

International

12.8

14.4

12.4

23.3

26.1

24.6

% Int'l

69%

71%

73%

63%

74%

78%

Y/Y %

104%

71%

'Q/Q %

13%

(14)%

88%

12%

(6)%

Total

18.6

20.3

17.1

37.0

35.1

31.5

Y/Y %

89%

55%

'Q/Q %

9%

(16)%

117%

(5)%

(10)%

Click to enlarge

Apple continues to gain smartphone market share in the US as measured by comScore. It estimates that Apple's US market share (on a three month rolling average) has steadily increased from 28.1% in October last year to 31.9% in May.

7 mth

Oct. '11

Nov. '11

Dec. '11

Jan. '12

Feb. '12

Mar. '12

Apr. '12

May '12

Oct-May

Google

46.3%

46.9%

47.3%

48.6%

50.1%

51.0%

50.8%

50.9%

4.6%

Apple

28.1%

28.7%

29.6%

29.5%

30.2%

30.7%

31.4%

31.9%

3.8%

RIMM

17.2%

16.6%

16.0%

15.2%

13.4%

12.3%

11.6%

11.4%

(5.8)%

Microsoft

5.4%

5.2%

4.7%

4.4%

3.9%

3.9%

4.0%

4.0%

(1.4)%

Symbian

1.6%

1.5%

1.4%

1.5%

1.5%

1.4%

1.3%

1.1%

(0.5)%

Other

1.4%

1.1%

1.0%

0.8%

0.9%

0.7%

0.9%

0.7%

(0.7)%

Total

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

0.0%

Click to enlarge

June Quarter Revenue And EPS Projections

I estimate that Apple can generate $40 billion in revenue in the June quarter, which would be a 40% year over year increase and up 2% from the March quarter. Note that for the previous two years, the June quarter's sequential revenue increase was 16% in both 2010 and 2011. But those two years were helped with iPhone launches during the quarter, or with Verizon having a full quarter of availability. The Street is projecting revenue of about $37.5 billion and guidance was $34 billion.

I believe memory pricing was better than Apple expected. I am projecting gross margins of 45.3% vs. guidance of 41.5%, a 380 basis point delta. Note that in the March quarter, Apple gave 42.0% gross margin guidance and came in at 47.4%, a 540 basis point outperformance.

My EPS projection is $11.75 for the quarter (up 51% year over year) vs. the Street at $10.35 and guidance of $8.68. My higher EPS estimate is in-line with previous outperformances vs. company guidance in other quarters.

Disclosure: I am long AAPL.

Additional disclosure: I am an individual investor, not a licensed investment advisor or broker dealer. Investors are cautioned to perform their own due diligence. All information contained within this report is presented as-is and has been derived from public sources & management. Always contact a financial professional before making any major financial decisions. All investments have an inherent degree of risk. The future is uncertain, and actual results may be materially different from those expected. Past performance is no guarantee of future results. All views expressed herein are my own, and cannot be interpreted as the views of my employer(s) or any organizations I am affiliated with. Presentation of information does not necessarily constitute a recommendation to buy or sell. Never make any investment without conducting your own research and reading multiple points of view.