Another note about Apple by RBC analyst Amit Daryanani—his second in a week, his sixth this year:
iPhone 8: Why This Could Change Everything.
All You Need To Know: We think the next iteration of the flagship iPhone will be a complete redesign (the first since the iPhone 6 in 2014) and will drive an iPhone super cycle that could match or even surpass unit sales/growth during the iPhone 6 cycle (this will depend on supply more than demand we think). We continue to think AAPL stock works higher from here given potential for the next iPhone model to accelerate unit sales in addition to: 1) ASP upside: given the added cost of new features (OLED screen, etc.) we think there is potential for price to increase significantly, 2) Expansion of iOS install base (service revenue opportunity from net new iPhone users), 3) Increased service revenue mix would drive gross margin expansion and benefit AAPL multiple, and 4) capital allocation and cash repatriation. Maintain OP and $155 target.
iPhone Data Download: We think the iPhone announcement will occur in mid September. From a features perspective we expect: 1) Upgraded A11 processors deployed by TSMC, 2) slightly curved edge-to-edge (bezel eliminated) OLED display in flagship model, 3) integrated Touch ID/home button (fixed Home button removed), 4) glass body in place of current aluminum casing similar to the iPhone 4, 5) front-facing camera integrated in display with AR and facial recognition capabilities, 6) inductive-style wireless charging capabilities, 7) RAM/Storage: 3GB RAM and 64/256GB storage options, 8) Pricing: Potential for $1,000+ price for flagship product given increased cost, 9) Two “standard” iPhone models (4.7″ and 5.5″) in addition to the flagship device.
iPhone 8 a Boon for Services: We think the iPhone redesign can accelerate share gains and iOS install base growth from switchers and new to iOS users. We view growth of the install base and replacement cycles as key drivers for AAPL’s Services business given increased units in and higher ARPU among newer device users (AppleCare and App Store revenue). The increasing mix of Services revenue could provide several tailwinds for AAPL stock including: 1) Gross-margin annual tailwind of 40-60bps and 2) better valuation narrative for AAPL given increasing mix of higher margin, less cyclical recurring revenue. With this dynamic, we think there is potential for AAPL’s multiple to expand modestly over time.
Reiterate Outperform and $155 price target.