Apple: Color on product announcement
- RBC notes this year's event marked one of the most highly anticipated product announcements in recent years, and from a product perspective, the company did not disappoint. We think the new form factor and net new features/capabilities (wireless charging, AR enablement, 3-D sensing) added to the flagship device will drive accelerated device upgrades within AAPL's install base combined with increased switching activity. Notably, the iPhone X will not begin shipping until November 3; the later than anticipated launch date could partially shift new device unit/ASP lift from Dec-qtr to Mar-qtr. Fundamentally, they think the excitement surrounding the new form factor/features will drive increased unit demand in addition to mix shift toward the higher-end device ($999), which should enable one of the strongest iPhone cycles in recent years.
- Needham notes that given the size of AAPL's supply chain, it is nearly impossible for them to keep secrets. As a result, nearly everything announced yesterday had been leaked ahead of time. The 3 upside value drivers for shareholders (their view) were: 1) a broader range of iPhones with two 8- iPhones plus 1 iPhone X (said as 10 not X); 2) a wider choice of price points for AAPL's smartphone product line; and, 3) upgrades to watch and TV which add stickiness (ie, lower churn) to the AAPL ecosystem if they become more widely adopted. Each of these suggests valuation upside from wider consumer adoption, higher ASPs and margins, and falling churn (ie, longer consumer payment streams to AAPL).
- Mizuho notes that everything about the phone seems in-line with speculation. They find delayed release of the product and high price points to be incrementally negative for the company as it will likely limit any near-term upside to estimates. Overall, with consensus calling for iPhone unit/ASP growth of 14% and 6%, respectively, for FY18, we see limited upside to estimates. Further, with the stock trading at around 15x FY18 consensus EPS estimates (11x FCF), they think valuation fully reflects robust expectations.
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Suppliers:
- Cowen notes that while AAPL's announcement was largely expected, their supply chain work indicates a significant increase in iPhone X units for DecQ (1/2 of ~91MM) after remaining absent for most of CQ3 that indicates a later, but more significant iPhone ramp than iPhone 7/7+. Based on their checks, most interesting read-throughs include MU, TER, AVGO, QRVO, SWKS and OLED. Increases in DRAM and NAND content per SKU are overall positive for MU (Outpeform, $34.29) and memory-levered SPE names like AMAT (Not Rated), LRCX (Not Rated) and to a lesser extent, ICHR (Outperform, $23.65) and UCTT (Market Perform, $24.00). They think AAPL's new application processor, the A11 Bionic, is a modest, but not significant, positive for TER (Not Rated) as the addition of two more high efficiency cores vs. the A10 Fusion on the iPhone 7 could drive increased tester demand. iPhone X marks the start of a transition that should see AAPL move to all AMOLED displays (vs. LCD). LG Display (LPL/034220) has been the supplier of flexible AMOLEDs for the Watch, and should benefit from the refresh, although incremental related royalties may be more noticeable for OLED.
- Mizuho notes that Apple news is positive for memory suppliers (MU, WDC) as it eliminates 32GB and 128GB models, now offering only 64GB and 256GB NAND densities. Wireless charging on all three is positive for AVGO. The 8/8 Plus launch on September 22 is ~ a week later than last years 7/7 Plus with the X a month and a half behind (Nov. 3), which could potentially push some component supply chain orders into the DecQ and even into the typically weaker MarQ for this "supercycle."