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Does Apple Have What It Takes To Sell More Than 75 Million iPhones?

|Includes: Apple Inc. (AAPL)

This will be a simple forecast of Apple (NASDAQ:AAPL) iPhone sales.

Before I begin I want to be clear in my forecasting analysis. Many analysts and authors are vague in their forecasting, for example the statement, "We are certain that operating margins will grow for the quarter", and "I believe there is a strong likelihood that sales will decrease", or "These factors may increase earnings in the future". These statements are unclear and don't mean anything quite frankly. We have no indication from the author what "certain", "strong likelihood", or "may" really means. Do they mean 20% certain of an increase in sales or 80% certain of an increase in sales? Without these numbers we have no way of fully understanding an investment authors actual assessment, or even in tracking their performance over time.

I don't intend to do this. I will try to be as objective and granular in my analysis so that readers can understand in full context where I stand on an event, perspective or factor at play.

The following table determines my scale of likelihood on an event.*









Almost Certainty Not

Probably Not



Almost Certain


Lets begin with Apples historical iPhone record.

Since Apples first iPhone release in 2007, the company has seen explosive growth in sales and its equity value. While Apple designs and creates many different products, much of the past revenue growth has been attributed from iPhone sales. Almost two-thirds of Apple's revenue is derived from the iPhone. I would argue that currently no other single product matters in terms of affecting revenue growth and Apple's current market value (new products pending of course).

If we compute the difference factor for every new iPhone quarter (new iPhone quarter divided by the previous quarter) we can compute a geometric mean for all quarters after the iPhone 3s, and use that as a simple factor to forecast Apple's December quarter's iPhone sales.


Previous Quarter (NYSE:M)

New iPhone Quarter

Factor Difference

'08 Q3 - Q4




'09 Q3 - Q4




'10 Q3 - Q4




'11 Q4 - '12Q1




'12 Q4 - '13Q1




'13 Q4 - '14Q1




'14 Q4 - '15Q1







Geo Mean

'15 Q4 - '16Q1




Data pulled from Statista.1

** Not included in geometric mean

Okay so this is a good starting point. Using Apple's sales history as our empirical study, I will side on the better half of Apple beating their historical sales record of 75 million. I will then make a prediction of lets say 75% probable that Apple will sell more than 75 million iPhones in the December Quarter. This is a rough estimate that needs to take into account many other factors and perspectives.

Lets look at these other factors.

China slowdown has shifted global smartphone demand curve downward

The Chinese markets in the past year have not been pretty. Chinese indexes are down nearly one-third from their highs (NYSEARCA:FXI), others more so (NYSEARCA:ASHR). China is obviously a major consumer and intends to be an even larger consumer of iPhones, in the near term and the future for Apple. According to estimates from Counterpoint Research, as of September 2015, Apple iPhone commanded a 19% market share within China, not far behind were second place Huawei and third place Xiaomi, each respectively above a 16% market share.2 This is indeed a competitive marketplace.

Any significant factors such as a fall in China's disposable income or discretionary income will affect demand for mobile phones, especially luxury iPhones.

With the slowdown in China underway, there have been recent reports of a global smartphone slowdown in response. According to Tsuneo Murata, CEO of the Japanese smartphone maker, Murata Manufacturing Co, growth for the fiscal year in April 2016 will be in the high single digits.3 This is down significantly from the previous 12% growth forecast the company made prior for fiscal 2015/16. Other reports have forecasted slower smartphone growth as well. According to IDC Worldwide, "global smartphone growth in 2015 is expected to slow to 10.4% down from 27.5% growth in 2014".4

Keeping the above in mind and because China is such major consumer in the smartphone space, I will lower my forecast by 18% to a 57% certainty of Apple selling more than 75 million iPhones in its December quarter.

6s not much of an improvement over 6

In past "S" version releases of the iPhone there is usually not a major change in noticeable hardware or software. I emphasized noticeable because this year is no different. In fact I would argue that the change from the iPhone 5 to 5S was much more noticeable, with its fingerprint bezel design. While the iPhone 5S sold about 51.03 million phones in its December quarter vs the previous iPhone 5 sales of 47.79 million1, it was not by a large sales margin. This doesn't bode well for the new 6s, because while there is a major technological hardware change using 3D touch, this is not apparent to consumers.

As I don't believe this factor will have a large impact on sales, I will lower my estimate by 5% to a 52% likelihood of Apple selling more than 75 million iPhones in the December quarter.

Sprint and T-Mobile discounts have increased demand

There have been many discounts and promotions with carriers in the U.S. market. T-Mobile for example in there most recent promotion during Cyber Monday, offered a free memory upgrade for all iPhones with new subscription plans.5 This essentially discounted new iPhones by $100. Other carriers have done similar promotions.6Given that many of these promotions were within the U.S. only, I don't believe this factor will have a large impact on sales, I will increase my forecast by 6%.

Apple Management Optimism

Tim Cook was very positive in his last earnings conference on iPhone sales and earnings going into the December Quarter. During the call Tim Cook expressed, "We're pretty confident that we can grow this quarter despite having the mother of all comps".7 In late October during an interview with the Wall Street Journal Tim reportedly stated, "We saw no signs of a slowdown in China."8

Given that Apple management has a history of being very conservative in their sales and earnings guidance, Tim Cook's optimism is a strong indicator of increasing growth in earnings and iPhone sales in general. I believe this factor has a large impact on my forecast, I will increase my forecast by 18%.

Supplier Data

Most recently, negative data has come out from several Apple suppliers, such as Taiwan Semiconductors Manufacturing Co. (TSMC), forecasting "first quarter revenue will decline about 11% from the previous year".9 Apple contributes about 20% of TSMC's gross revenues. Another Apple supplier, Largan Precision, a provider of iPhone camera modules, has also forecasted a "weak" first quarter.9

This news could be one of two things. One, Apple has already made large orders for iPhone 6s parts earlier in the year and is currently still unloading its extra inventory or two, there is a major slowdown in global smartphone demand, specifically in China for its iPhone 6s in the December quarter.

This is a large factor to keep in mind. I will lower my forecast by 14%.

Are these factors priced into the market?

If you believe in an efficient market then yes, but that's not exactly how it works all the time is it?

I think in reality, we do not have a strong indication of what China demand looks like for the iPhone now or in the New Year. There is a lot of uncertainty here, and I believe this will affect Apple's current and future sales growth. Also with the negative news from Apple suppliers recently, this is a true indicator of slowing growth in smartphone demand.

I am mostly certain the 6s design is already factored into the market cycle. I believe investors already know this information. I have the same perspective for different carrier promotions such as the T-Mobile and Sprint discounts of iPhones. This news is already priced into the market.

Lastly Apple management has always been conservative in there forecasts for sales and earnings growth. This time is no different. While Tim Cook remains positive in growing sales in the December quarter, I don't believe its possible to predict sales growth in an uncertain market dynamic such as China for the New Year.

In my final analysis I am 62% probable that Apple will beat their 75-million iPhone sales mark. From this conclusion I do not have strong certainty in Apple beating last Decembers quarter sales. I don't believe Apple will have strong sales growth going forward this year. I see large uncertainty in both the China markets and global smartphone demand.

As I write this Apple stock has already fallen from last years high by nearly 27%. I believe much of the above factors including the supplier news is already priced into the market, with the exception of the China slowdown. We do not know the full extent of China's future hurdles and challenges.

*Much this process of certainty and forecasting is taken from the ideas of Professor Philip E. Tetlock. I have tried to apply this analysis to forecasting Apple iPhone sales.












Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in AAPL over the next 72 hours.