Ahead of earnings, analysts have been getting increasingly optimistic about iPhone sales.
Katy Huberty at Morgan Stanley, for instance, said the tool she uses to gauge demand based on web searches suggests Apple sold 55.5 million iPhones. She says Apple may report even better sales because it had to fill channel inventory. She says iPhone sales could come in at 57-58 million units. For some context, in the same period a year ago, Apple sold 43.7 million iPhones.
However, Walt Piecyk, the talented analyst at BTIG, brought up a warning sign ahead of Apple's report.
"I hate to throw cold water on a great party but the first quarter reports of AT&T and Verizon haven't exactly been strong indicators for Apple," says Piecyk. "Yet, the consensus estimates for Apple have been rising mere days before the company reports and it's unclear what new data has been unearthed to support those revisions."
While Apple sells lots of phones around the world, the US is still its biggest market, accounting for ~35% of sales. AT&T and Verizon accounted or ~20% of iPhone sales in 2014, according to Piecyk's estimates.
Verizon and AT&T no longer break out iPhone sales. However, they report smartphone upgrades. Verizon had flat upgrade rates for the first quarter, and AT&T was only up slightly. As a result, smartphone sales were 2.3 million lower at those carriers than Piecyk expected.
Apple has 60% of smartphone sales at AT&T and Verizon, so that would imply lower iPhone sales of 1.4 million. That's a blip compared to the consensus expectations, which are ~55 million for the quarter. However, analysts like Huberty are raising estimates based on filling inventory, which is only a few million units. So, 1.4 million units could be the difference between beating or missing expectations.
Sprint and T-Mobile have yet to announce earnings. It's possible T-Mobile, which has been doing well lately, has stolen those missing upgraders. If that's the case, then no biggie. But, Piecyk is skeptical that T-Mobile is big enough to grab all those missing upgraders.
Even if the US underperforms, China could make up for it. China has reportedly been strong for Apple in the March quarter. Unit sales could be strong in China, but Piecyk warns that the average price of an iPhone is lower outside the US, which could lead to softer revenue.
While Piecyk is sounding a note of caution, he's careful to say he's not predicting doom. He's simply bringing this up because other analysts are starting to run wild with iPhone estimates.
"To be clear, we are not trying to make an 'Apple Will Miss The Quarter' call," he writes. "There are plenty of factors that could offset AT&T and Verizon's weakness, like T-Mobile and China, but we thought it was important to highlight the slowing smartphone sales at two of Apple's largest customers."