Apple Inc.’s (NASDAQ:AAPL) on again, off again iPhone upgrade super cycle appears to be back on track. A new report suggests that despite early supply constraints, the iPhone X is selling at a breakneck pace, while Apple’s supply chain is now churning out the flagship smartphone.
Add in solid iPhone 8 numbers, and if the company keeps up the pace, it’s going to shatter single-quarter record iPhone sales.
That’s great news for AAPL stock, and with the $999-plus iPhone X in the mix, the average iPhone selling price is also expected to hit record highs.
iPhone Upgrade Super Cycle Struggles
Apple stock hit (then) record highs in the lead up to September’s iPhone event. Why? There’s always the anticipation of new models kicking off a round of upgrades, and each year that results in new record iPhone sales. However, 2017 was supposed to be different.
With an all-new, ultra-premium, 10th anniversary iPhone X set to be released — along with the iPhone 8 — AAPL investors were looking forward to a so-called iPhone upgrade super cycle.
But things quickly appeared to be going south. Apple went with a staggered release. First up was the iPhone 8, and based on early indications (including a virtual lack of lines at Apple stores), demand seemed weaker than expected.
The iPhone X was running into severe supply constraints due to a manufacturing issue at Hon Hai Precision Industry Co., Ltd (OTCMKTS:HNHPF) — better known as Foxconn — raising concerns that it would be months before iPhone X sales would actually ramp up.
As a result, just a week after the iPhone event, AAPL stock had dropped 8% from its pre-announcement high.
Upgrade Super Cycle back on Track with Record iPhone Sales
Despite a less than ideal launch and frustration overproduction issues, the situation began to turn around.
Apple reported iPhone 8 sales were actually brisk. Availability for the iPhone X began to improve, and not because of lack of demand –production was finally hitting full swing. At the moment, the delivery time for a new iPhone X is only days.
Research firm IHS Markit just released a report that is very bullish on Apple’s prospects, predicting record iPhone sales for the fourth quarter. Besides year-on-year shipment increases over the next four quarters, iPhone X sales will drive up the ASP (average selling price) of the iPhone to new levels as well.
MacRumors has details from the IHS Markit report. They include:
- “In the US, iPhone X adoption after three weeks matched the adoption of iPhone 8 Plus and beat early adoption levels for both the iPhone 8 and 7 Plus.”
- Shipping 31 million iPhone X units — as predicted by IHS Markit — would mean the iPhone average selling price (ASP) would exceed US$700 for the first time in the 10 years since Apple released its smartphone
- IHS Markit forecasts Apple will ship 88.8 million iPhones, shattering record iPhone sales for a single quarter
To put the potential upside for AAPL stock in perspective, look at that last number in particular: 88.8 million iPhones.
In Q1 2017 (which covers the traditional October to December fourth quarter), Apple reported its highest quarterly revenue ever, driven by record iPhone sales of 78.3 million. Those sales were up 5% over the previous year and immediately caused a 2.6% pop in AAPL stock.
If IHS Markit’s forecast is correct, that 88.8 million won’t just be a record for iPhone sales, it will obliterate the previous record, with over 13% year-over-year growth. That would be the iPhone upgrade super cycle that Apple and its investors have been hoping for, and it would undoubtedly push AAPL stock to new heights.
We’ll have to wait until Jan. 31 when Apple Inc. reports its Q1 2018 earnings to find out how close IHS Markit’s numbers are, but if they are even in the ballpark, it’s going to be the start of a very good year for Apple.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
