RBC: Apple headed into a multiyear supercycle

From a note to clients by Royal Bank of Canada analyst Amit Daryanani that landed in my inbox Thursday:

We think Sep-qtr ASPs should witness y/y uptick due to increase in base price of iPhone 8 vs iPhone 7, higher memory mix and broader ASP increase across the portfolio. However, ASP could be offset by lower units as potential buyers stay on sidelines due to timing of iPhone X launch. For Dec-qtr, given iPhone X launch timing, we think Dec-qtr street estimates could be too high (RBC iPhone units at 80M vs. street @ 86M). However, we think AAPL BULL thesis remains intact as we see host of tailwinds:

1) Gross-margin upside given ASPs and mix, along with FX benefit partly offset by NAND pricing,

2) Services growth and content narrative,

3) China revenue trajectory, &

4) potential cash repatriation benefits.

Overall, we think AAPL stock trends higher as higher ASPs and staggered unit uptick will make this a multiyear cycle vs. one year supercycle.

iPhone units and revenue

Click to enlarge. 

Daryanani maintains his Overweight rating and $180 price target.

My take:  More sell-side cheerleading.

5 Comments

  1. Fred Stein said:

    Agree with Amit. And think he misses the bigger picture about “X”.

    X starts the next generation of OLED phones which means 800 plus million new iPhones upgraded over several years, including a smaller $400-ish version.

    X starts the next generation of AR and AI enabled App and Games, which may dramatically increase the App revenue per iPhone.

    Deeper down in future technology, there is MRAM and battery advances like those in Amprius that could increase battery life by 2 or 3 X. Such breakthrough technologies could drive upgrades of iPhones, plus all current and future Apple wearables starting 2 to 4 years from now.

    0
    October 13, 2017
  2. John Kirk said:

    I don’t know anything about supercycles, but I have been noticing a few things that bode well for Apple.

    First, they basically don’t have any competition in the market they target. They dominate the premium sector. Their biggest challenge in that regard is selling premium phones to countries like India that don’t have large, thriving middle classes.

    Second, Apple is starting to distance themselves from the field in technological accomplishments. I think facial id will be big. They’re got force touch (or whatever they’re calling it now). Their cameras are second to none. Their efforts in miniaturization are phenomenal. And chips? Wow. Apple is outdoing themselves in advances in silicon.

    Third, privacy. People keep saying Apple is behind their competitors. But Apple’s business model gives them a huge advantage in privacy. Apple doesn’t make money by invading your privacy. Google, Amazon, Facebook do. And premium buyers like privacy and are willing to pay for it.

    There’s probably more, but off the top of my head, that’s plenty. As I usually say, none of these things guarantee Apple’s future. But they do guarantee Apple’s present.

    2
    October 13, 2017
    • Peter Kropf said:

      “There’s probably more,…”

      I’d add Apple’s facial/emotional detection leading quickly to Hollywood ready real time animoji generation.

      This is going to accelerate all live actor CGI effects by supporting real time playback of scenes/characters. A huge reduction in CGI production costs.

      1
      October 13, 2017
  3. Robert Paul Leitao said:

    Joe:

    As I’ve said several times, I believe the so-called super cycle will escape beyond the confines of FY2018. I expect FY2019 iPhone unit sales to exceed FY2017 results and may rival FY2018 unit sales.

    In this instance, I believe Mr. Daryanani is reiterating his $180 price target. Fundamentals remain strong no matter the date Apple meets supply/demand equilibrium on the iPhone X and the forces creating a strong economic tailwind will remain in place for the next few years.

    0
    October 14, 2017

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