Solid Black Friday and weekend checks indicate that Apple is headed for a super holiday season as traffic at Apple stores is extremely robust with a strong demand for iPhone and iPads.
While we expect inline iPad and iPod sales, we see upside to our iPhone and Mac expectations. Given the higher margin nature of iPhones, offset by some discounting in iPod, iPads, and Macs, we expect margins to be in line with expectations, Wedbush Securities analyst Scott Sutherland wrote in a note to clients.
On Black Friday and over the weekend, the brokerage surveyed five Apple Store locations. On Friday, all five stores experienced wall-to-wall traffic, driven by about 10 percent price discounts on iPads, iPods and Macs. On Saturday and Sunday, traffic remained steady.
In addition, checks at Best Buy, AT&T and other channels indicated a solid demand for Apple's products, the analyst said.
With solid demand across channels for the iPhone 4S and expansion of global distribution, Sutherland sees some upside to his estimate of 27.7 million units as iPhone shipments may benefit from global expansion.
Our checks show demand for iPhones, iPads and Macs is robust and Apple stores enjoyed heavy traffic throughout the holiday weekend, Deutsche Bank analyst Chris Whitmore wrote in a note to clients.
As a result of the extremely robust demand for the iPhone 4S, Apple retail stores experienced stock outs at about 75 percent of the stores the analyst called on Black Friday. However, the analyst's checks on Saturday morning indicated that Apple replenished supplies overnight and 30 percent of the stores they contacted reported iPhone 4S stock-outs.
Checks indicated stores were running through supply briskly due to high customer demand and store reps stated that it was only a matter of time before they ran out of stock. From a supply perspective, the brokerage's checks indicated mixed inventory levels for the iPhone 4S at Apple's authorized carrier outlets.
Meanwhile, AT&T stores reported a stock-out rate of 50 percent over the weekend as it struggled to keep up with the heavy demand, while Verizon pointed to nationwide stock-outs. However, all Sprint stores had adequate inventory to meet the demand.
In addition, Apple experienced healthy demand for iPads and Macs and had sufficiently stocked its retail stores and authorized outlets.
Whitmore said his checks suggest that the iPad continues to be a customer favorite with the 16GB and 32GB models in high demand, while the 11-inch entry level MacBook Air was the most popular among the Macs driven by attractive Black Friday discounts.
On the iPad front, Apple offered $41-$61 discounts on the tablet, resulting in a steady flow of iPad sales at Apple stores and other locations. While there was some concern with reduced orders for iPad 2 components, this is mostly due to the transition to the iPad 3, which is expected to be introduced in the first half of 2012.
Further, we found healthy demand for iPods, particularly the higher ASP iPod Touch. In aggregate, our checks suggest demand for Apple products has started the holiday season extremely well and we believe iPhones and Macs (particularly the Air) are tracking in-line to above our unit estimates (28.0M iPhones, and 5.0M Macs) while iPad and iPods are tracking roughly in-line (14.0M iPads, 15.6M iPod), Whitmore said.
Whitmore has a buy rating and $530 price target on Apple stock, while Sutherland rates Apple with an outperform rating and $535 price target.