China's 2-million iPhone 5 launch: What the analysts say

December 17, 2012: 7:45 AM ET

Record first-weekend sales suggest a strong Chinese New Year for Apple

Hong Kong

Apple Store opening in Hong Kong Saturday. Screengrab: M.I.C. Gadget

FORTUNE -- On Friday, UBS's Steven Milunovich wrote that "some of [his] Chinese sources do not expect the iPhone 5 to do as well as the iPhone 4S." Two days later, Citigroup's Glen Yeung wrote that reports of supply-chain order cuts "bring into question the strength of iPhone 5."

That was before Apple (AAPL) announced that it sold more than 2 million iPhone 5s in mainland China last weekend, beating its previous Chinese iPhone releases -- including the iPhone 4S that triggered launch-day riots last January.

On Monday, most of the analysts who cover the company were singing a different tune. Excerpts from their notes to clients below: (New ones on top)

Wells Fargo's Maynard Um: The Mayan Apocalypse Is Not Upon Us. "While initial news out of China indicated a less-than-stellar launch, Apple reported a record-sales weekend in China, selling over 2 million iPhones in three days. The initial news last week out of China was based on reports of only a few customers at Apple stores-- however, Apple's announcement this morning (12/17) should help to allay concerns and provide us with additional comfort that the company will either meet or beat our 46MM iPhone estimate for the December quarter. We continue to expect Apple to deliver record results for the December quarter. While we recognize that the March quarter could see some seasonality coming off a strong December quarter, we note following supply chain data has not always been reliable particularly as Apple expands sources (we do not believe Hon Hai is Apple's sole source manufacturer for iPhone 5). Apple is currently trading near its five-year trough multiple (roughly 10x NTM EPS) at about 10.1x our 2013 EPS estimate, with roughly a quarter of its market capitalization in net cash (about 7.6x multiple of 2013 EPS, net of cash)."

Jefferies' Peter Misak: Successful iPhone 5 launch in 50+ countries. "Our retail checks indicate the iPhone 5 in China and the 50+ additional countries saw demand that was inline to slightly ahead. We believe Apple sold 4M to 5M iPhone 5 handsets over the weekend in China and the 50+ additional countries. Our carrier checks indicate total iPhone demand sell-through is tracking above 50M units."

RBC's Amit Daryanani: Two Million iPhone 5 Sales. "This marks a record setting sales weekend in China and the Company remains on track to launch in 100 countries by the end of the year. In our view, this is a positive as the company continues to outpace the previous iPhone 4S launch setting up for a positive Dec-qtr... With a smaller Smartphone selling base in China we believe the record sales are a positive for the company. Notably, this growth excludes China Mobile which is the largest mobile operator in the world with ~700M subscribers and 75.6M 3G customers. We previously estimated that the addition of China Mobile could add ~$3 to Apple's EPS or ~$45 to its stock price with sales of 10-16M units in its first 12 months of availability."

Piper Jaffray's Gene Munster: Demand Remains Strong, Lower Priced Phone Inevitable. "Given the recent noise around Apple over the past week, we believe there are three core points to take away. First, based on our work in the US and the 2 million iPhone 5s sold in China this past weekend, we believe demand for iPhone remains strong. Second, for iPhone in 2013, we remain comfortable with our iPhone estimates. Typically, suppliers reduce production in the quarter following a new iPhone release. While some suppliers suggest a 20-30% q/q step down in March, it is difficult to say what inventory already exists in the channel to make an assumption on March units. Third, and most uniquely to our point of view, we believe the bigger picture around all of the iPhone unit speculation points to the fact that Apple needs to introduce a lower priced device for emerging markets. We expect the device by 2014 or potentially earlier."

Sterne Agee's Shaw Wu: Remain Comfortable with Above Consensus iPhone Forecast. "This is a strong number and should help quell investor concerns. The number of corresponding iPhone 4S sold was not disclosed but to put this in context, China Unicom pre-orders are up 50% to 300,000. We remain comfortable with our above consensus iPhone forecast looking for 47.5 million units for the December quarter. We continue to believe iPhone 5 is a significant update positioned to drive a powerful product cycle."

Atlantic Equities' James Cordwell: Strong start for iPhone 5 in China. "To put the 2m figure in context, IDC estimates that Apple shipped 17.7m units to mainland China in FY12 (and 27.4m into Greater China), meaning launch weekend shipments were over 10% of last year's total volumes. In addition, the volume is probably comparable to that achieved over the same period in the US. Apple stated it shipped over 5m iPhones during the initial nine country launch of the iPhone 5, with the US probably representing about half of this volume, by our estimates. Admittedly the US figure might have been hit by supply constraints and the fact that all these figures are based on sell-in means they have to be treated with a little caution, but we still view it as positive that initial Chinese shipments were close to those in Apple's biggest geography."

Barclay's Ben Reitzes: Unprecedented Volatility Seems to be Pricing in a Major March Quarter Guide Down - Oh, and China's Pretty Good. "Recent pessimism around the iPhone 5 launch in China seems  overdone since most of the activity seems to be online. In fact, Apple just announced that sales of the iPhone 5 over its first three days in China topped 2 million units - much better than our expectations - especially given negative investor sentiment about emerging markets sales of iPhones of late (although we are still unclear how much of the 2 million plus is sell-through). That said, we would still be surprised to see overall December iPhone (all types) sales well over 50 million given tougher competition, some of the concerns around iOS 6, and macro pressures... For Apple we believe the sell-off is nearing a bottom but we acknowledge the fears around margins, maps, emerging markets, competition and execution. The company clearly needs to ease these concerns in the near future - and the announcement around China iPhone 5 sales was a nice start. Investors seem to be pricing in very weak guidance when the company reports in January (consensus F2Q estimates are now calling for flat EPS y/y). It may take another round of new products and innovations to regain investor confidence and help drive another run"

Topeka's Brian White: China Can't Shake Apple Fever as We Approach the Year of the Snake. "Recall, Apple launched the iPhone 5 in China on Friday (12/14) and given the lackluster lines, there was growing concern around demand for this new iPhone. Clearly, this view turned out to be incorrect as this represents a big print for Apple and the first time the Company ever issued a post-launch press release for iPhone sales in China. With the Chinese New Year beginning on February 10 and shopping season starting in January, Apple has the two hottest products (i.e., iPhone 5 and iPad mini) in the world available for the Chinese consumers... We have previously indicated that we expected a big uptick in China demand with the iPhone 5 as we believe both iPhone 4 and iPhone 4S owners will upgrade. The strong iPhone 5 sales this weekend support our view. The key reason is status. In our view, a new form factor shows the world that you have the latest and greatest iPhone, a sign of status in China."

ISI's Brian Marshall: Quick thoughts. "We view this as a very strong launch, particularly in light of a relatively limited 3G subscriber base in China. For comparison, recall AAPL had sold over 5mil iPhone 5 units in the weekend of its launch in the U.S. and 8 other developed markets. We estimate ~2mil iPhone 5 units were sold at U.S. carriers (T, VZ, S) in the first 10 days of launch or ~1.0% penetration of a post-paid subscriber base of ~200mil. In a shorter time span of just 3 days, AAPL sold over 2mil units at China Unicom and China Telecom, or ~1.5% penetration of a ~130mil 3G subscriber base. In our view, this suggests potential for subscriber penetration in China could be similar to that of developed countries despite per capita GDP that is less than 1/5 of the U.S."

Asymco's Horace Dediu: Calibrating launch performance for the iPhone 5 in China. "This is, as far as I know, the first weekend sales data for a single market outside of the US. The time span was three days and therefore the daily sales rate was 2/3 million per day. The following chart compares the launch performance for the launches which Apple reported:


More as they come in.

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Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for

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