Susquehanna: Apple iPhone Production Checks 'Solid,' Boosting Estimates

In a report published Monday, Susquehanna analyst Chris Caso maintained a Positive rating on Apple, Inc. AAPL. The estimates have been raised to reflect the continued strength in the company's supply chain, as well as the strength in iPhone production. Based on checks in Asia, the analyst expects upside to the iPhone units projection. The June quarter revenue and EPS estimates have been raised from $48.2 billion and $1.70 to $51.3 billion and $1.91, respectively, to reflect the shipment of 50 million iPhone units during the quarter. The revenue and EPS estimates for the September quarter as well as CY2015 have also been raised. "We are still concerned about a number of potential headwinds for 2H, including the potential currency impact on the iPhone 6s launch, weak iPad units, and tough compares for 2H15. But the apparent near-term strength in iPhone units, now three quarters into the iPhone 6 launch, serves to overcome all of these concerns," Caso stated. The analyst also expressed confidence in the new features added to the iPhone 6s to drive continued momentum for this model. "Our checks suggest dual cameras on iPhone 6s. Having dual cameras would allow for 3D video recording, but more importantly would bring much greater depth of field and zooming ability to the phone, thus bringing the camera phone experience closer to that of a more expensive digital camera, narrowing the gap," the Susquehanna report said. In addition, supply chain checks indicate that apart from the iPHone, the Macbook, would continue to witness strength, while the Apple Watch would see a solid ramp in production. The iPad however is expected to see some weakness. "We believe AAPL remains somewhat constrained on the new 12" MacBook due to strong demand for the product. However, checks do note continued weak trends in iPad and we reduce our estimates on iPad fairly significantly for the balance of the year," Caso reported. In addition, there appears to have been a strong ramp in Apple TV's supply chain production, ahead of the company's WWDC conference. The analyst expects Apple TV production to grow nearly three-fold in 2Q to about 1 million units per month, ahead of a potential new product launch. "We note that AAPL doesn't just intend to use Apple TV as a TV product, but also intends to use Apple TV as the gateway for their HomeKit IoT ecosystem. AAPL hasn't talked much about HomeKit since unveiling the platform last year, so we expect today's keynote to contain a strategic update on their IoT strategy, likely coupled with some launches from HomeKit partners," Caso added.