Pacific Crest: We See Risk To Sell-Side Apple iPhone Estimates

• Apple Inc. AAPL shares have gained 8 percent year-to-date, but are still trading much below their 52-week high of $134.54.
• Pacific Crest’s Andy Hargreaves maintained an Overweight rating on the company, with a price target of $142.
• Although the buy-side iPhone estimates for FQ2 appear appropriate, there is risk to the sell-side expectations, Hargreaves said.

“Based on our most recent checks, we estimate iPhone component orders of approximately 50 million in FQ2,” analyst Andy Hargreaves wrote.

Sell-in has typically exceeded the Pacific Crest estimate of component orders in FQ2, since Apple's manufacturing partners work through component order inventory built in the previous quarter. This indicates that the supply checks are consistent with the FQ2 sell-in of 55 million units, or could be marginally higher in case manufacturing yields are better than anticipated, Hargreaves stated.

The checks suggest potential for risk to the FQ2 iPhone sell-in estimate of 59 million units. The analyst added, however, that there is “room for error as our FQ2 component order estimates could still change and manufacturing yields could be better than we expect.” Therefore, the estimates have not yet been changed, although the bias is to the downside.

In the report Pacific Crest noted, “We believe many investors already expect FQ2 iPhone units of 55 million, with some anticipating FQ2 units as low as 50 million. So, while we see risk to sell-side estimates, including our own, we believe Apple is much better positioned to meet buy-side expectations.”

Hargreaves added that Apple is a sustained gainer of market share in the smartphone segment, and its pricing is likely to remain protected by its brand, ecosystem and the iPhone's extraordinary utility.