Image Courtesy : WSJ
Apple (AAPL) threw a curveball during its recent earnings call when it revealed a year-over-year increase in iPhone revenue for China despite data suggesting a significant sales slump. A new report from UBS Securities sheds light on this apparent discrepancy.
Divergence Between Shipments and Sales:
- UBS highlights a key distinction between "shipments" and "sell-through" data. Apple recognizes revenue upon shipment, meaning units sent to retailers are counted as sales even if they haven't reached consumers yet.
- This distinction explains the difference between Apple's reported revenue growth and data suggesting weak demand.
China: Shipments Up, Sales Down:
- While iPhone sales in China supposedly declined 13% year-over-year in March, UBS reports a 12% increase in shipments compared to the same period last year.
- This suggests Apple strategically reduced its channel inventory in China, particularly in March, by shipping fewer units than in previous months.
Image Courtesy : Reuters
Inventory Optimization in China:
- UBS estimates that iPhone sell-through in China only slightly exceeded the number of phones shipped in March. This indicates a successful effort by Apple to streamline its inventory in the Chinese market.
Analyst's View:
- UBS maintains a neutral rating on Apple with a $190 price target. While the China situation seems to be under control from an inventory perspective, the underlying demand trends remain a point of potential concern.
Overall, the UBS report clarifies the discrepancy between Apple's reported revenue and weak sales data in China. It appears Apple strategically reduced channel inventory, leading to higher shipments despite lower consumer demand.