Wells Fargo: Next Apple iPhone Cycle Will Have Fewer Tailwinds

In a report issued Friday, analysts at Wells Fargo reiterated a Market Perform rating on Apple Inc. AAPL, as its next iPhone cycle seems to have fewer tailwinds.

The specialists take a look at historical and potential carrier additions, and iPhone units per carrier.

A Deeper Analysis Of iPhone Carrier Partners

Key remarks include:

1) Growth is likely to be driven by deeper penetration at existing carriers. The firm estimates that Apple's 414 carrier relationships account for 95 percent of the globe’s total mobile subscriptions (6.76 billion in the 193 UN member countries).

2) “Analysis may suggest the 6S cycle could see a slowing on a units per carrier basis.” Historically, non-S cycles have witnessed higher year-over-year growth than S cycles.

3) Carrier additions have been very important in driving unit growth in the past. The analysts note that “December quarter units were historically, in part, driven by new large carrier adds (we are unaware of large carriers that would be material to Apple this December) and in the 5S cycle, Apple added carriers fairly aggressively, which we believe helped to offset the slowing per carrier demand.”

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4) Apple has become more aggressive in the carrier additions front this quarter. This could be a reflection of “decelerating demand caused by a pull-in of demand into the prior two quarters.”

5) Analysis also suggests that Wells Fargo’s FQ3 15 and FQ1 16 estimates are reasonable.

6) The iPhone’s average selling price (ASP) and gross margins may be closer to hitting a roof. The analysts believe the 6s cycle may “not see a meaningful uplift to gross margin and believe following form factor (iPhone 7) may see greater gross margin pressures vs. iPhone 6, which benefitted from the 6+ ASP lift and mid-range 64GB mix shift.”

“ASPs saw a significant increase, which we believe can be maintained in the 6S cycle though unlikely to move higher,” the analysts conclude.