Maybe Apple, Inc.'s iPhone Sales Won't Shrink in Q4 After All

By Evan Niu,

iPhone 6s. Image source: Apple.

In recent months, there's been some discussion regarding whether Apple will put up its first ever year-over-year decline in iPhone unit sales later this year. Last year's iPhone 6 upgrade cycle was so immense that it inevitably created a tough compare for this year. I mean, beating 74.5 million units is no easy task, and anything less technically qualifies as a year-over-year decline. To be clear, it's perfectly fine if this occurs, and in fact it's an eventuality.

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But maybe it won't happen this year after all.

Puts and takesThe most recent estimate to make the rounds comes from KGI Securities analyst Ming-Chi Kuo. The analyst is modeling for Apple to sell between 70 million and 75 million units in the fourth quarter. The high end of that range would notably slide by last year's figure, enabling Apple to potentially put up growth yet again.

We all know how much the market loves year-over-year comparisons (perhaps too much at times), but Apple has another factor working for it this year. The iPhone 6 and 6 Plus didn't launch in China until Oct. 17, which was about three weeks into the new fiscal year (Apple's fiscal 2014 ended on Sept. 27 of that year).

This time around, China was included in the first wave of launch countries, which also helped Apple boost its launch weekend sales of 13 million units. Having an additional three weeks of selling in China compared with last year will help the comparison.

The flip side is that iPhone 6s demand isn't expected to be as strong as the iPhone 6 enjoyed last year. That's because 2015 is an incremental "S" cycle year, and there was no change in the form factor. One of the iPhone 6's biggest selling points was the shift to larger displays, a move that was greatly appreciated in China.

Kuo believes Apple's first year-over-year iPhone decline will occur in the following quarter in 2016.

Word on the StreetAs the Street prepares for Apple's upcoming earnings release next week, not all of them have put out Q4 estimates quite yet. But looking at Fortune's compilation of the Street's current best guesses, there's even more reason for investors to be optimistic. As of right now, the Street consensus is hovering right around 78 million units for the December quarter, so Kuo isn't alone in his bullishness.

I tend to ignore the independent analysts who are included in Fortune's compilation, since they stopped outscoring the pros long ago. Nowadays, the independent estimates are way too bullish to the point of absurdity. My suspicion has always been that they are probably extrapolating prior growth rates into the future without acknowledging how hard that is to deliver in reality. Do you really think Apple can sell nearly 86 million iPhones in Q4? Not likely.

Interestingly enough, this all comes as Samsung is expected to post its own first ever annual year-over-year decline in smartphone shipments. The South Korean conglomerate has enjoyed its spot as the No. 1 vendor by unit volumes for years, even as within its volumes its mix has been shifting downmarket. Earlier this month, TrendForce predicted that Samsung's 2015 volumes will fall by a modest 1%.

One of these days soon, Apple will post a year-over-year decline, but it'll be totally fine when it happens. Until then, let's see what kind of numbers Apple puts up on Tuesday.

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Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends 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.

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