Morgan Stanley: Ignore that Apple supply chain noise

From a note to clients by Morgan Stanley analyst Katy Huberty that landed in my inbox Thursday night:

What investors are asking: What will it take for Apple stock to continue to work as we approach the end of the March quarter and supply chain data points become noisier heading into the product transition?

Our view: We continue to expect Apple to unveil a groundbreaking new iPhone in September and believe that discussion of supply chain delays is premature considering component production typically starts around April and manufacturing ramps around July, and therefore it’s almost impossible to know yields at this point…

Early indications continue to point to 20-30% iPhone unit growth in C2H17, which is far better than our 4% estimate that incorporates the risk of supply constraints, low yields and/or a delayed product launch.

Additionally, recent news reports noted that Chinese smartphone vendors Oppo and Vivo told suppliers to halt production due to rising inventory levels, which suggests to us that potential smartphone buyers may be delaying their purchases in anticipation of a new revolutionary iPhone. In fact, more Vivo and Oppo smartphone users plan to buy an iPhone than stick with their current brand. Combine this with limited OLED supply that will largely be soaked up by Samsung and Apple, and we continue to see a strong 2H17 and beyond for Apple, especially in China, as the 10th anniversary phone is released.

See also: Morgan Stanley hikes its Apple bull case to $190

7 Comments

  1. hdediu@asymco.com said:

    “more Vivo and Oppo smartphone users plan to buy an iPhone than stick with their current brand”. So what’s the value of a satisfied customer and what’s the price of a dissatisfied customer?

    6
    March 17, 2017
    • Mark Visnic said:

      The value of a satisfied customer is not being allocated adequately/properly to Apple’s share price. The value of a satisfied customer is the stickiness that equates to recurring revenue and should lead to a substantially higher multiple. Microsoft’s 30x comes to mind but even a 20x multiple would lead to about a 33% increase in market cap by rough calculation, so, I’ll say $50 billion conservatively. 😉

      1
      March 17, 2017
    • Gianfranco Pedron said:

      I’m not so sure Vivo and Oppo customers are necessarily dissatisfied, but I would hazard a guess that most are indifferent with respect to the brand.

      What is the cost of that indifference? Gross margin.

      1
      March 17, 2017
  2. Mark Visnic said:

    “In fact, more Vivo and Oppo smartphone users plan to buy an iPhone than stick with their current brand.”

    That statement, by the way, is as eye opening this morning as a triple espresso. I’d be interested in knowing the source of the data that yields that conclusion.

    1
    March 17, 2017
  3. Gianfranco Pedron said:

    “… recent news reports noted that Chinese smartphone vendors Oppo and Vivo told suppliers to halt production due to rising inventory levels, which suggests to us that potential smartphone buyers may be delaying their purchases in anticipation of a new revolutionary iPhone …”

    Interesting example of how “hard data” is plasticized using current sentiment and molded to conform to the prevalent herd mentality.

    A couple of years back, that same data point would have been molded into a chorus of “market saturation = doom for Apple” arguments.

    It’s the same, just different.

    Lesson? Don’t put so much faith in the herd. (But I think the herd might be right this time around.)

    3
    March 17, 2017

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