J.P. Morgan’s take on a month of Apple news

Analyst Samik Chatterjee weighs in on the Goldman Sachs card, Apple’s San Diego gambit, a sleep-tracking Apple Watch and more.

From a note to clients that landed on my desktop Tuesday morning:

Apple and Goldman Sachs to start issuing joint credit card paired with iPhone. The Wall Street Journal reported that Apple and Goldman Sachs plan to launch a joint credit card in 2019. According to the article, Apple plans to incentivize customers to utilize the credit card on Apple’s wallet app through special features (e.g. spending goals, reward tracking and managing balances) in addition to earning cash back of 2% on most purchases and potential more on Apple products and services (see article here).
Our take: Apple continues to build on Apple Pay’s success-to-date by enhancing its position by expanding into offering its own credit-card, which we believe will be accompanied by a larger portion of the fee associated with credit card purchases (interchange fees of up to 184 bps relative to processor fee of 15 bps earlier). Overall, the organic initiatives demonstrate that management continues to believe that there is significant headroom for organic growth of this service.

Apple teaming up with Ant Financial for iPhone Financing. Reuters reported that Apple has partnered with Ant Financial Services Group and several other local banks in China to provide interest-free financing for iPhones in the country (see article here).
Our take: The price cuts from retailers in China continue to hint at higher than usual inventory in the channel and both retailers and Apple are looking at multiple levers to drive demand.

Apple to add 1,200 jobs in San Diego over three years. San Diego’s Mayor announced that Apple plans to add 1,200 jobs in San Diego over the next three years as it looks for the city to become a primary hub for the company’s engineering talent (see article here).
Our take: While Apple’s expanding presence in San Diego could be seen as a negotiating tool with Qualcomm, we believe it makes a potential settlement with Qualcomm much less likely given a more established brand name to attract engineering talent and develop internal capabilities over the next few years.

Apple planning sleep tracking feature for next-generation Apple Watches. According to Bloomberg, Apple is currently testing sleep-tracking feature that could be introduced in Apple Watch by 2020 (see article here).
Our take: Sales of Apple Watch continue to be robust as we expect the company to continue to lead competitors with 50%+ share of the smartwatch market, led by the feature richness of the product, particularly around health and fitness. We see the Apple Watch becoming core to the Health & Fitness franchise and services offerings in the future from the firm.

Maintains Overweight rating and $228 price target. 

My take: Maybe it’s the format, but this part of the note was way more interesting to me than the monthly iPhone supplier tracker to which it was attached. The bottom line on that part came from Chatterjee’s colleague Billy Feng, following an Asian tech tour: 

…better-than-expected smartphone sell-through during Chinese New Year (CNY), but suppliers remained cautious about 2019 smartphone demand, with a 10% unit decline expected for the China market YoY.

Cue the bar graphs:

jp morgan chatterjee apple

Click to enlarge. 

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