Bernstein Research’s Toni Sacchonaghi this morning offers a longish (36 pages) report based on a conference call he conducted discussing that despite abundant opportunity for Apple‘s (AAPL) iPhone in China, the immediate outlook is somewhat less desirable than he’d expected.
Sacconaghi, who rates Apple shares Outperform, with a $750 price target, thinks Apple may have seen iPhone sales in China decline by 1.5 million units in the quarter ending this month, to 7 million, owning to inventory having built up last quarter, the burning-off of the initial iPhone 4S demand, the slowing of China’s economy, and the burning off of the initial lift from sales by China Telecom (CHA), which got the phone back in March.
That means there is “downside to our current iPhone unit forecast of 29.9 mil. this quarter,” he writes.
Sacconaghi had warned in late April inventory levels might be a “wildcard” this quarter. Consensus is probably in a range of 28 million to 30 million units for the quarter, he believes.
Sacconaghi hasn’t changed his official estimate for this quarter, however, which calls for $37.11 billion in revenue and $10.53 per share in profit. That is a little lower than the consensus $37.61 billion but higher than the Street’s $10.36 per share. If the iPhone number were to come in as low as 25 million units, Apple would miss the consensus by about $3 billion, writes Sacconaghi.
Still, his overall outlook is positive for Apple in China, with the iPhone having only 10% to 15% share of the smartphone market, below its 24% worldwide share.
Although sales of low-cost (sub-$300) phones is on the rise, overall growth in incomes in the country will help boost the ability for consumers to afford the iPhone, avers Sacconaghi:
We say, “well, how many users are coming into affordability for the iPhone.” It’s about 55 million a year for the next five years. We do the math and we think that over the next five or six years there could be another 30 million iPhone sales just from people kind of growing into affordability of the iPhone and riding that smartphone penetration curve.
Still, Sacconaghi advises Apple should consider a “lower priced” iPhone model, perhaps one available to carriers before subsidy at $250, because it would leverage the “stickiness” of Apple’s wares relative to the competition:
There is a stickiness [...] When we asked in a consumer survey that our Global Handset analyst Pierre Ferragu led, repurchase intention was very high at 95% for Apple. But it’s pretty high for [Google's (GOOG) Android at 75%. It's very low for Nokia�(NOK) and [Research in Motion's (RIMM) Blackberry [...].�
Apple shares today are up $7.54, or 1.4%, at $576.59.
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