Wedbush: Despite China worries iPhone demand cycle looks stable

From a note to clients by analyst Daniel Ives that landed on my desktop Thursday:

Our Asia checks continue to give us confidence based on supply chain tea leaves that Cupertino is in the process of producing between 75 million to potentially 80 million iPhone 11 units heading into the September launch period. This is roughly in line with the year ago period and speaks to our thesis that despite the myriad of China challenges and macro swirls, Apple is seeing stable demand and still feeling confident…

From an overall unit perspective, we believe Apple is on a trajectory to sell between 180 million to 185 million iPhone units in FY20 with relatively stable ASPs on the heels of moderating iPhone headwinds, despite many of our peers yelling fire in a crowded theater. In China specifically around demand, while the environment remains complex for Apple to navigate, thus far we have NOT seen many cracks in the armor…

The installed base of Apple remains the golden jewel and key to the valuation and our bullish thesis, as with 900 million active iPhones worldwide and roughly 1/3 of those poised to be in the window of an upgrade over the next 12 to 18 months.

Maintains Outperform rating and $245 price target. 

My take: This is Ives’ standard bullish case. His note also offers a bear case:

The temporary US/China ceasefire is reversed, tariffs are ultimately placed on the iPhone and throw a large wrench into the iPhone product cycle; China demand doldrums remain into FY20.

5 Comments

  1. Dan Scropos said:

    At 180 million per year, that means the upgrade cycle has slowed to 5 years. Coincidentally, that’s how long I think I’m keeping mine before I upgrade. If something game changing comes out, I’ll move that up.

    1
    August 16, 2019
    • Milenko Tanasijevic said:

      At standard 5 year depreciation schedule , your yearly cost is a tad higher than $ 200,
      or daily cost of < 1 USD. I am getting a far greater ROI on my iPhone tapping into valuable sources of information such as PED, Cybart

      0
      August 16, 2019
    • Gregg Thurman said:

      Last week my sister upgraded her iPhone 6S to an iPhone XS. The reason? Battery. She had already replaced it about 2 years ago and didn’t want to do it again.

      Here’s the surprising thing about her upgrade perception. She doesn’t like FaceID and has yet to find anything about the XS she feels is truly superior to the 6S. Had it not been for an almost dead battery she wouldn’t have upgraded.

      I’m not saying my sister is representative of those hanging on to older iPhones, but I found her impressions interesting as she’s a heavy user of it. Her impressions do make me feel that FY2020 & 21 will be a large upgrade years because of 5G. Killer apps come and go, but a 10X (100X?) data speed boost can be seen/experienced, and no matter how unimportant people may claim it is, try to take it away once they’ve seen it.

      0
      August 16, 2019
      • Gregg Thurman said:

        I can see Apple’s 5G marketing now. With a 5G hub inside the Store a simple download comparison of the 5G iPhone against the customer’s 4G device will convince a greater number than usual to upgrade. Convince the customer to apply for an AppleCard (instant approval), immediately get 3% cash back, and throw in Apple’s trade-in program to seal the deal.

        0
        August 16, 2019
  2. Milenko Tanasijevic said:

    —- WSJ through News+, Reuters, Bloomberg

    0
    August 16, 2019

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