UBS: iPhone demand in China up 230% in September

One factor, says analyst Timothy Arcuri, is that the largest mix of iPhones in the installed base (iPhone 7) is three generations old.

From a note to clients that landed on my desktop Monday:

Monthly government data suggests overall iPhone demand in China was strong in the month of September, up ~230% vs. ~110% monthly growth last September. This is wholly consistent with recent procurement data/estimates from the UBS Asia Hardware team.

A stronger sell-through combined with our supply chain work leads us to believe there is upside to our current iPhone unit estimate of flat for the Dec. quarter and flat Y/Y in F20. Apple stock is up ~8% against the S&P 500 down ~1% since the launch of iPhone 11 – an atypical seasonal pattern that we think duly reflects both our optimism about C2020 and AAPL’s prominence as a major global underweight for portfolio managers.

Several factors are contributing to strong iPhone demand including a better trade-in program from Apple, a more attractive price-point for the base model, services bundle with hardware, and given the largest mix of phones in the install base (iPhone 7) is three generations old.

Maintains Buy rating and $235 price target. 

My take: Are iPhone supplies short or demand strong? This data point suggests the latter.

11 Comments

  1. David Emery said:

    I wonder if the “Anti-Apple” sentiment has been measured, and whether a reduction in that is leading to a stronger refresh cycle in China. My guess/hypothesis is that some Chinese delayed buying new phones because that was considered as “Anti-China” for a while.

    0
    October 14, 2019
    • Robert Paul Leitao said:

      David:

      If I recall correctly, the economic life of an iPhone, on average, was approaching four years in the Greater China region. There’s a practical limit to the elongation of the upgrade cycle and reported iPhone 11 demand in the region may be the first evidence the length of the upgrade cycle has finally reached its limit.

      Also, the combination of attractive trade-in options and moderating iPhone prices will prompt upgrade activity as well.

      1
      October 14, 2019
  2. Gregg Thurman said:

    Says Acuri:
    Monthly government data suggests overall iPhone demand in China was strong in the month of September, up ~230% vs. ~110% monthly growth last September. This is wholly consistent with recent procurement data/estimates from the UBS Asia Hardware team.

    Says Cabral:
    As of Friday (21 days post-launch), wait times for the iPhone Pro/Pro Max remain >1 week in each of the eight geographies we’re tracking, and while they’ve modestly shortened vs. our last update in several markets, this year’s launch has now remained supply constrained longer than the XS / XS Max release which reached equilibrium within three weeks (see Figures 7-12 for details on iPhone wait time by model, memory capacity, and color across eight major countries)…

    There’s a reason for my optimism. Here comes Apple’s first FQ1 $90 Billion quarter.

    0
    October 14, 2019
    • Michael Thompson said:

      Pencil me in at Apple’s first $95+ billion quarter.

      0
      October 14, 2019
  3. Mark Visnic said:

    “My take: Are iPhone supplies short or demand strong? This data point suggests the latter.”

    The answer is: Both are true. The former because of the latter. To give likelihood to any other conclusion is to believe that Apple grossly underestimated even marginal demand. They underestimated better than expected demand is the more probable conclusion based on Apple’s historical prowess in managing the supply chain better than any other company in its space.

    1
    October 14, 2019
    • Gregg Thurman said:

      They underestimated better than expected demand is the more probable conclusion

      Absolutely fantastic extended thinking.

      0
      October 14, 2019
      • Mark Visnic said:

        Laugh. That sounded like Captain Obvious to you? My guess is that Apple expected demand that would have beaten consensus and actual demand exceeded that. : )
        I expect Apple generally has a pretty good handle on refresh rates and cycles but, might have underestimated demand from the PRC for obvious reasons.

        0
        October 15, 2019
  4. Fred Stein said:

    Simple question: Might iPhone 11’s price contribute to higher demand?

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    October 14, 2019
    • Robert Paul Leitao said:

      Fred:

      Simple answer: Yes.

      While I’m cautiously optimistic (and as I stated in an earlier post today), FY2019 provides a soft compare. Both moderating prices and limits on the elongation of the iPhone upgrade cycle will contribute to handset demand this model year.

      0
      October 14, 2019
      • Fred Stein said:

        yes. rhetorical question, a jibe to over-thinking.

        That said, Apple thought this through, addressing the price-sensitive majority of the 1 billion user base. With rebate for an older phone, the iPhone 11 costs 50 cents a day over 4 years – Great phone, great camera, great value.

        0
        October 15, 2019

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