Morgan Stanley Lowers Apple (AAPL) 2017 iPhone Estimates, Sees March Qtr Guidance "Likely Below Consesnsus Estimates"

Morgan Stanley maintains Overweight on Apple (NASDAQ: AAPL), keeps price target of $148.00.

Analyst Katy Huberty is lowering her FY 2017 Apple estimate to "reflect weaker iPhone 7 demand (7 Plus stronger), somewhat offset by better ASPs. We expect March guidance below consensus." She remains bullish on FY 2018 supercycle however, and raises her iPhone shipment estimates by 20% YoY.

Huberty comments "we increase FY18 iPhone revenue by 6% and now look for 20% Y/Y shipment growth, which is in line with the low-end of supply chain checks. Our FY18 iPhone units are unchanged at 253M but the lower base in FY17 now reflects 20% unit growth next year which is at the low-end of supply chain checks pointing to 20-30% unit growth. We increase FY18 iPhone ASP by 6% flowing through the better mix and new high-end price points. We expect compelling new features such as AMOLED displays, new casing and wireless charging, and think Apple could implement select features only in higher end models and likely raise prices at the high-end, similar to the dual-camera exclusivity and the $20 price increase for the 7 Plus this year. While we think Apple has many levers to offset bill of material increases, we lower FY18 GM by 30bps to 37.7% to consider risk of lower manufacturing yields on new components and recent increases in NAND spot prices and the stronger US Dollar."

She reiterates her view that Apple is a Top Pick in US IT Hardware for 2017, saying "We believe the market is focusing too much on near-term data points, and not enough on upcoming catalysts. We see an iPhone supercycle led by China in FY18, and in this report we increased our iPhone ASPs while maintaining shipment estimates for next year. We see a reasonable probability of US cash repatriation during the new administration, which could drive significant cash return and acquisitions, especially in media. US tax reform could lower Apple's tax rate (border adjustments would make it neutral in our rough estimate)."

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $119.04 yesterday.

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