April 14, 2016
We were asked a seemingly simple question this morning. What did we, as Apple investors, miss last summer that could have helped us to avoid the steep correction in share price? There are a myriad of possible answers. But the most elegant and reasonable is actually the simplest. Apple borrowed growth from the future.
Apple has created a relatively well-established trend as far as growth rates when you look at specific quarters. Below, we look at each particular quarter with actuals going back to the beginning of 2011. We use a regression analysis to determine where unit sales should have been in 2015 and in the future. Let’s take a look.
Note: blue columns represent actuals; red columns represent our expectations for the March and June 2016 quarters, and the small red triangles extrapolate the likely future unit sales.
March Quarter. Based on the chart below, it’s easy to see that the March 2015 quarter was a blowout as far as iPhone unit sales. As a consequence, fewer are likely to have purchased new phones in the March 2016 quarter. That’s why we say that in 2015, Apple “borrowed” growth from the future. Based on the regression analysis, unit sales should get back on track in the March 2017 quarter with north of 65 million units.
June Quarter. The June regression analysis shows a similar dynamic to March, but to a lesser degree. Apple will likely post a smaller iPhone unit sales count in the June 2016 quarter than it did the year prior. But also just like March, the June 2017 quarter should get back on trend with just under 55 million unit sales.
September Quarter. Here’s where things get interesting. In September 2015, there was no “borrowing” of future growth. Therefore, this upcoming September 2016 should see strong year-over-year growth of roughly 55 million units, with similar growth in 2017. Investors are likely already factoring a decline in June 2016 year-over-year sales. But after Apple reports in March actuals / June guidance in two weeks, September will be coming into view. We believe that’s key, as investors are always forward-looking (roughly 6 months). We feel particularly good about this quarter as the R-squared – a statistical measure of how closely data fits to a regression line – is almost 100, meaning the growth is almost exactly linear and easily estimated.
December Quarter. Here’s where the real fun starts. Apple started “borrowing” future growth in iPhone unit sales in December 2014. That’s why the December 2015 numbers were as weak as they were. But this upcoming December 2016, Apple is likely to get back on trend. The regression analysis infers that roughly 85 million unit sales are likely to be announced – based on the established longer-term trend of iPhone unit growth. That works out to a roughly 10 million unit increase each year from 2011.
What Does This Mean? The downtrend in Apple shares should be coming to an end. In just 10 short weeks, the June quarter will be closed out and behind us. From that point, Apple will no longer be faced with the headwinds of strong quarterly comparisons. It will be important to see how future unit sales compare to these regression lines; it will allow us to see whether Apple is likely to face the same issues in the future.