Apple's headquarters in Cupertino, Calif.
Photograph by Noah Berger — Bloomberg via Getty Images
By Philip Elmer-DeWitt
January 27, 2016

As expected, the sell-side analysts skipped by Apple’s record-breaking results for the December quarter—the most profitable in the history of free-market capitalism—and focused instead on the company’s guidance for the March quarter, which some described as better than expected.

Most analysts kept their positive ratings but cut their price targets. Apple (aapl) opened Wednesday at $96.03, down 3.96%.

Excerpts from the reports we’ve seen.

Katy Huberty, Morgan Stanley: Better than feared. We are positively biased given better than feared March guidance, a growing user base, accelerating services revenue and new iPhones later this year. Guidance incorporates a cautious macro outlook and sets up for a stronger iPhone 7 cycle… Management spent a lot of the conference call describing a “turbulent” global macroeconomic environment as major markets like Brazil, Russia, Japan, Canada, Southeast Asia and the Eurozone experienced slowing economic growth in 2H15. Most important, Greater China, especially Hong Kong, saw economic softness beginning in December. Overweight. Cut price target to $135 from $143.

Toni Sacconaghi, Bernstein: Not as Bad as Feared… With Numbers Being Reset, Will Investors Begin to Look Forward? After adjusting for a patent settlement and a lower than expected tax rate (which collectively added $0.11 to EPS), Apple’s FY Q1 (Dec) results were modestly below consensus and largely in line with our estimates. We have updated our models, but our FY 16 and FY 17 EPS estimates remain largely unchanged. Outperform. $135.

Colin Gillis, BCG. Haiku: There may come a point, when sales of iPhones mimic, the iPad decline. Hold. Cut price target to $110 from $115.

Daniel Ives, FBR: Cook Rips the Band-Aid Off for March Guidance. Last night, Jan. 26, Apple delivered respectable F1Q16 (December) headline numbers, generally hitting the Street’s bogey (75 million iPhone unit number), while exceeding the Street’s expectations on the bottom line. Overall, the quarter took a back seat to March guidance, which was the Street’s focus as Cook finally ripped the band-aid off and lowered Cupertino’s outlook based on softer 6s demand and a choppy macro. With the Street widely expecting a softer March guide, we would characterize a 50 million-plus iPhone unit bogey as “better than feared,” although this was nothing to write home about. Outperform. Cut price target to $130 from $150.

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Gene Munster, Piper Jaffray: Guide Implies iPhones Better Than Expected, But Macro Commentary Weighs. Shares of AAPL are trading down ~3% in the aftermarket despite the company guiding iPhone ahead of buy side expectations. We believe Apple’s insistence on broader macroeconomic headwinds may have spooked investors and resulted in the June number not being de-risked as we previously expected. If the macro headwinds continue to be an issue for AAPL, we would expect it to impact the entire market and would still view AAPL as a relative winner even in a down market environment as we believe tech investors would view the safety of Apple’s capital return program as a positive. Overweight. Cut price target to $172 from $179.

Walter Piecyk, BTIG: Apple’s March Quarter Guide Finally In Rear View Mirror. We were wrong to assume that the ability of customers to upgrade early would drive greater volumes, but we now turn our eyes forward to the next iPhone launch, which we believe can return back to iPhone unit and company-wide revenue growth… Apple is perceived as a company that is ex-growth, so in large part we took our numbers there. The company does not appear to be able to broaden its revenue stream to products or services that can provide more optimism about growth. That led us to cut $4 billion of revenue out of our model that probably shouldn’t have been there in the first place. Buy. Cut price target to $141 from $160.

Sherri Scribner, Deutsche Bank: March Q guidance not worse than feared. AAPL’s results were roughly in-line and guidance wasn’t worse than buyside expectations. However, guidance implies a significant decline Y/Y in March Q iPhone units, which likely drives a decline for FY-16. We remain concerned about the lack of growth in iPhone units this year, the slowdown in China sales, and gross margin pressure from FX as we move through the year. We see limited catalysts for the shares in the near term, and expect the stock to be rangebound. With AAPL becoming a recurring revenue story, we expect the valuation to rerate in line with other mature, services-type companies. At current levels, we view valuation as reasonable. Hold. $105.

Anil Doradla, William Blair. Macro Takes a Bite Out of Apple. While some segments of the investment community might interpret the Apple results as signs of doom-and-gloom, we continue to be very positive on the company’s fundamentals. We believe the larger handset industry is reeling under severe headwinds, both from a pricing and differentiation point of view—areas where Apple has clearly maintained its strength. Furthermore, unlike Apple’s continued investment in innovation, competition has fewer resources to allocate. Bottom line, while the company will be affected by the ongoing macro weakness, we firmly believe that Apple will come out of the current industrywide headwinds in a relatively stronger position than its competitors. Outperform.

T. Michael Walkley, Canaccord. Challenging macro weighs on Q2/F16. Apple sales would have grown 8% year-over-year in constant currency, as significant currency headwinds had a $5B adverse impact to Q1/F’16 sales. Based on our survey work and analysis, we believe Apple is maintaining strong share of the premium tier smartphone market. However, given the similar form factor for the iPhone 6S and softer smartphone global demand trends, we anticipate weaker and down year-over-year 1H/C2016 iPhone sales. Buy. $146.

Timothy Arcuri, Cowen: Installed Base Creates Service, But Hardware Keys The Multiple. With guide that was not as bad as some investors feared, the hardest compare is now on the tape.This factor and numbers which imply downside to only ~$90 make this a relatively safe investment at this price. However, we still see AAPL broadly in a period of transition where an upgrade on our part would require a new product cycle or market – both of which still remain elusive. Market perform. $125.

Steven Milunovich, UBS: Is Services Emphasis a Sign of Peak iPhone? Apple Doesn’t Think So. Apple emphasized the strength of its installed base and the services driven by 1 billion Apple products in use. Management wants to underscore the ecosystem strength (installed base up 25% in F15 is impressive) and becoming an annuity business. The investor concern is that companies like Xerox and semi cap names start talking about services as they are going ex-growth. Apple told us in no uncertain terms that iPhone units can grow for years to come based on feature differentiation and emerging market opportunities. Buy. Cut price target to $120 from $130.

Andrew Uerkwitz, Oppenheimer: A Perfect Time to Reflect on Apple’s Long-Term Potential. We see FY16 as a very challenging year due to macro headwinds in emerging markets and an elongated replacement cycle in developed markets. But we believe growth potential in China and other emerging markets has not been fully realized and will help to strengthen AAPL’s 1 billion device installed base. We believe investors’ patience will be rewarded, as Apple transitions to a recurring revenue-based model. Outperform. $120.

Ben Thomson, Stratechery: Apple’s Good Earnings. If you forecast linearly, you would expect to sell 200 million iPhones in 2015, and 230 million iPhones in 2016. If you fit a logistic regression (i.e. an S-curve, which the data from 2008-2014 suggests), you would expect to sell 178 million iPhones in 2015, and 184 million iPhones in 2016. In fact, though, Apple sold 230 million iPhones in 2015… In other words, I actually don’t really see evidence that the iPhone is slowing down much at all. The most likely explanation for these results is that Apple did indeed pull forward some sales from 2016 to 2015, but that number pales in comparison to the new customers Apple picked up in both years (which inflated sales in 2015 and made up for the “pull-forwards” in 2016). In other words, I continue to believe you should stop doubting the iPhone!

Kulbinder Garcha, Credit Suisse: Reset as Expected. We believe we now have a handle on the degree of GM erosion over this subdued iPhone cycle. This, we believe, provides a baseline CY EPS estimate of $8.92, meaning incremental downside risk is capped at ~$89. With high retention rates, a superior ecosystem, and multi-product compute advantage and an installed base of 1bn users, we believe Apple provides a sustainable, annuity type FCF of ~$60bn per annum. Outperform. $140.

Stephen Turner, Hilliard Lyons: Solid Results in a Weakening Macro. Buy. Cut price target to $128 from $140.

Andy Hargreaves, Pacific Crest: Strong Pricing Suggests No Commoditization. Overweight. $132.

Abhey Lamba, Mizuho: Fundamental Story Remains Good Although Near Term Data Points Were Soft. Buy. $120.

William Power, Baird Equity: Macro Weighs, but Remain Positive on Long-Term Position. Outperform. Cut price target to $130 from $150.

Rob Cihra, Sterne Agee: China Remains a Headwind but Continue to See Mar Qtr as iPhone’s Y/Y Trough. Buy. $145.

Ananda Baruah, Brean: Implied iPhone Guide “Solid” Considering Noise; Bar May Now Be Reset. Buy. $170.

Tim Long, BMO: iPhones Down But Not Out. Outperform. Cut price target to $130 from $133.

Ben Schachter, Macquarie: Should See a Bottom Soon. Outperform. $117.

James Cordwell, Atlantic Equities: iPhone, gross margin outlook better than feared. Overweight $140.

Shebly Seyrafi, FBN: AAPL: Now Clearly a Value Play. Outperform. Cut price target to $120 from $150.

Aaron Rakers, Stifel: Estimates Reduced Amidst Macro Weakness. Buy. Cut price target to $120 from $140.

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