Goldman Weighs In On Top 5 Apple Debates For 2015

Apple Inc AAPL sits near all-time highs, but in a note on Friday, analysts at Goldman Sachs tackled the main questions facing the world’s largest company. Here are the questions, as Goldman phrases them, along with the analysis.

Question: How should we think about March quarter iPhone seasonality and Apple’s guidance?

Answer: March quarter guidance is “remarkably conservative.” The analysts expect quarter-over-quarter iPhone sales to decline 26.5 percent – the result of a challenging quarterly comp from Q4 2014. The firm’s overall revenue estimate is still above Apple’s guidance.

Additionally, Goldman noted that it anticipates an inventory build of 9-10 million shipments that is not currently factored into estimates – reducing the downside risk in both the March and June quarters.

Question: Is currency risk fully factored into current expectations?

Answer: Currency risk is factored into the current expectations. Goldman said it expects that currency headwinds to play a larger role in the June quarter than in the March quarter, the result of hedges that begin to roll off. This translates to an additional 50 basis point reduction in gross margins in Q2.

Question: Will the Apple Watch live up to expectations?

Answer: Investor expectations are in line, though some Wall Street analysts expect sales that are “remarkably high.” Goldman is skeptical that Apple Watch can “move the needle” for a company of Apple’s size, but the firm raised its Apple Watch expectations. Goldman said that it forecasts 18.4 million Apple Watch units in its first full year, compared with 15.5 million units previously.

Question: Will Apple’s new capital allocation program meet lofty expectations?

Answer: “It is clear” that Apple will increase its capital allocation program with its annual update in April. The analysts forecasted that Apple will buy back $37 billion for FY15. In the note, Goldman outlined a bull case that has Apple repurchasing $50 billion in stock per year and increasing its dividend by 15 percent, totaling more than $60 billion per year in capital returns.

Question: Is the March quarter earnings release still the peak point of uncertainty?

Answer: No. Goldman said it expects the positive momentum to translate to the March quarter, expecting that the “peak period of uncertainty” will move to the summer. In the summer, the analysts say, investors will have to weigh momentum in the Apple Watch, supplier data on the iPhone 6, and how the landscape shifted for iPhone 6 competitors.