3 Important Positives From Apple's Recent Quarter

Analysts Avi Silver and Chang Liu listed the positives:

1. Assuming no increase to channel inventory, Apple's guidance implies 6–8 percent year-over-year growth in the sell-thru for iPhone 7 in the December quarter.
2. Mix of Plus is leading to highly favorable ASP.
3. The unlikelihood of Apple achieving supply/demand balance for the 7+ until year-end should mitigate the risk of an inventory correction in the March quarter.

Fundamentals Strong

Going by Apple's commentary on iPhone units, mix, ASP, China and demand-supply dynamics, CLSA sees the company's top line returning to growth after a challenging 2016. The firm believes Apple's revenue guidance would have been higher if not for the 7+ constraint driven by camera-related component tightness, although it expects conditions to ease toward the end of December.

The firm also noted that the company will not be building channel inventory in the December quarter, and consequently, the sell-thru will outpace sell-in. The spillover of Plus demand and the lack of inventory build makes the firm comfortable with the March quarter. Although the company expects China to show substantial improvement, the firm still expects a decline in China revenues.

ASP Outlook Stronger

CLSA noted that the company expects flat ASP for iPhone, while it termed the company's 38–38.5 percent gross guidance as weak and operating expenditure guidance as more than what Street is modeling.

Estimates Largely Unchanged But Sees Upside Bias

CLSA said its estimates are largely unchanged, as the revenue lift is offset by lower gross margin and higher operating expenditure. The firm still believes upside to estimates is likely, given positive 7-cycle data points, improving mix and easing comps.

CLSA has a Buy rating and a $130 price target for the shares of Apple.

At last check, Apple shares were down 2.59 percent at $115.18.