Analyst discovers extra week in Apple’s December quarter

Raises price target to $117 from $115.

From RBC analyst Amit Daryanani’s note to clients Thursday:

We are adjusting our Dec-qtr iPhone units higher given our understanding that FQ1 will have an extra week (14 week quarter vs. 13 normally). We estimate an extra week will result in ~5-6M incremental iPhone units for Dec-qtr and should enable a path towards iPhone unit growth… We think Street models do not reflect the extra week in Dec-qtr, which could provide a source of guidance upside following Sept-qtr results.

For as long as I can remember, Apple has closed its books on the last Saturday of each quarter, which for fiscal Q4 2016 falls on Sept. 24 and for fiscal Q1 2017 on Dec. 31. The extra week, Daryanani points out, is a mixed blessing. What makes December look a little better makes the March quarter-over-quarter comparison look a little worse.

25 Comments

  1. Fred Stein said:

    Watching AAPL prices and analysts targets of the last 5 years, analysts tend to follow the price trends up or down, the price being 10% or more below average of targets.. Amit supports this thesis.

    0
    August 12, 2016
  2. Robert Paul Leitao said:

    Ordinarily Apple’s fiscal quarters are exactly 13 weeks in length and always end on a Saturday. Because 365 days are not wholly divisible by 7, there’s a reminder day each year (2 days in a leap year). To realign the company’s fiscal quarters with calendar quarters, every 5 or 6 years (depending on the number of leap days in the multi-year period) Apple adds a 14th week to its first fiscal quarter. The last time this occurred was FQ1 2012 (the December-ending calendar quarter of 2011). A 14th week is being added to Apple’s first quarter in FY2017 which ends on Saturday, December 31st.

    This is nothing new and it’s surprising analysts that track the company are only now becoming aware of the additional week in FQ1 2017. This also means FY2017 will have 53 shipping weeks versus 52 weeks in most other years.

    Not only will an additional shipping week in FQ1 and thus an additional shipping week in FY2017 add favorably to YOY comparisons because there’s more time to ship more products and sell more services during the full-year period, there are other factors at play including but not limited to:

    1. A similar enclosure to this year’s iPhone 6 series handsets will most likely provide for a fast production ramp for the new flagship iPhone handsets.
    2. Gross margin will be attractive despite ongoing forex challenges because the cost curve on the new handsets will not be as steep as when a new enclosure is introduced to the market.
    3. Warranty set-asides may also be lower due to the familiar and proven design.
    4. All immediate post-Christmas sales in the week between Christmas Day and New Year’s Day will be included in FQ1. In other years the post-Christmas week sales straddle two fiscal quarters.

    In my view most of the Street’s revenue and eps estimates for FY2017 are not only conservative, they also may not include the additional shipping week in FY2017 in the numbers. I expect revisions to both FQ1 2017 and FY2017 revenue and eps estimates to occur as we move closer to the start of the new fiscal year.

    1
    August 13, 2016
    • Robert Paul Leitao writes:

      “To realign the company’s fiscal quarters with calendar quarters, every 5 or 6 years (depending on the number of leap days in the multi-year period) Apple adds a 14th week to its first fiscal quarter. The last time this occurred was FQ1 2012…”

      I knew you’d had the definitive answer, Robert.

      0
      August 13, 2016

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