In the past month or so, a horde of Wall Streetanalysts have raised their estimates for how many iPhones Applewill ship this quarter. Most of these revisions have pushed their sales estimates to 50 million or more units for the quarter ending in June.
The most surprising thing here is that so many analysts expected fewer than 50 million iPhone shipments in the first place. Here's why Apple shouldn't have any trouble exceeding this psychologically significant milestone.
Continue Reading Below
50 million is a lotTo be sure, 50 million is a big number. Last year, Apple only sold 35.2 million iPhones in the corresponding quarter, so it would need 42% year-over-year unit growth to reach 50 million this quarter. Indeed, until the iPhone 6 and iPhone 6 Plus arrived last fall, Apple had only once exceeded 50 million quarterly iPhone shipments, and that was during the peak holiday quarter.
The iPhone 6 has been incredibly popular. Photo: Apple.
Yet Apple has been posting huge iPhone shipment numbers recently. In the quarter ended in December -- the first of its 2015 fiscal year -- Apple shipped 74.5 million iPhones -- up 46% year over year. Last quarter, year-over-year unit growth slowed a bit to 40%, as Apple shipped 61.2 million iPhones.
The slight slowdown in growth might make investors think another slowdown in year-over-year growth is likely in the current quarter. However, three factors could bolster iPhone shipment growth this quarter.
Different point in the cycleThe top reason year-over-year iPhone growth could re-accelerate this quarter involves the dynamic of the device's sales cycle.
The new iPhones may not face a sharp summer slowdown in sales. Photo: Apple.
Last spring and summer, iPhone sales growth was held back by the large number of customers waiting for the larger-screen iPhone 6 and iPhone 6 Plus. This drove a 19.5% sequential drop in iPhone shipments from the second quarter to third quarter in fiscal 2014.
By contrast, while the next-generation iPhone will undoubtedly offer some improvements over the iPhone 6 and iPhone 6 Plus, there won't be a massive change like last year. Customers thus have less cause to hold off on buying a new iPhone. That could make this year's seasonal pattern look more like 2013's seasonality.
In that year, iPhone shipments declined 16.5% sequentially from the second quarter to the third quarter. If that trend repeats, Apple would ship 51 million iPhones this quarter.
Tighter channel inventoryA second factor that might support iPhone shipments this quarter is channel inventory growth. Apple typically reduces its channel inventory during the quarter ended in June as sales tend to fall off during the summer before the launch of new iPhone models. In the third quarter of fiscal 2014, it reduced channel inventory by about 150,000 units.
However, strong demand for the iPhone 6 and iPhone 6 Plus meant that Apple couldn't fully meet demand in the holiday quarter. Furthermore, Apple decided last year to increase its iPhone channel inventory target to five to seven weeks of supply (up from four to six weeks of supply previously). At the end of last quarter, Apple was still near the low end of that target range.
Between the relatively low channel inventory level at the end of last quarter and the continuing demand for the iPhone 6 and iPhone 6 Plus, Apple might expand channel inventory this quarter, bucking traditional seasonality. That would bolster shipment levels.
The Apple Watch is in storesFinally, the Apple Watch arrived for purchase in stores this week.This development could bolster iPhone sales in two ways.
First, the availability of the Watch for purchase could lure more people into Apple Stores. This will give Apple Store salespeople an opportunity to promote the new iPhones to visitors who haven't upgraded yet.
The Apple Watch is finally available for purchase at the Apple Store. Photo: The Motley Fool.
Second, there could be a fair number of people interested in the Apple Watch who either have an Android phone or an older iPhone. Only the iPhone 5 and newer iPhones are compatible with the Watch. That might create an opportunity for some Watch-plus-iPhone bundle sales.
Looking good so farApple has posted phenomenal iPhone sales growth since the iPhone 6 and iPhone 6 Plus became available last fall. The new iPhones accounted for about 20% of all iPhone usage by late December, according to mobile marketing specialist Fiksu.
The two new iPhone models expanded their usage share to about 30% by the end of the second quarter, and they are on pace to end the third quarter with a usage share of about 39%. This suggests the sales pace has only slowed modestly from last quarter's pace. As a result, Apple seems likely to ship more than 50 million iPhones this quarter. In fact, I wouldn't be surprised to see a shipment total as high as 55 million.
The article Apple Inc. Will Likely Blow Past 50 Million iPhone Sales This Quarter originally appeared on Fool.com.
Adam Levine-Weinberg is long January 2016 $80 calls on Apple, short January 2016 $120 calls on Apple, and short January 2016 $140 calls on Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.