Morgan Stanley: Next week’s Apple event is ‘its most significant in years’

“We remain buyers of Apple shares ahead of the event” — Analyst Katy Huberty

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

The long anticipated iPhone 12 launch is finally here, as earlier this week Apple announced a digital-only event with the tagline “Hi, Speed” set to take place next Tuesday, October 13th at 10am PST/1pm EST.

We expect this fall’s launch to be the most significant iPhone event in years as our supply chain checks.. indicate Apple is set to unveil 4 new devices, including

    • the brand-new 5.4″ iPhone 12 mini,
    • the 6.1″ iPhone 12,
    • the 6.1″ iPhone 12 Pro, and
    • the 6.7″ iPhone 12 Pro Max (the largest iPhone display ever)…

complete with 5G network connectivity, a rear-facing dual (iPhone 12 mini and iPhone 12) or triple (iPhone 12 Pro and Pro Max) camera module, Apple’s latest A14 bionic chip, longer battery life, 4GB+ of memory, new entry-level storage SKUs, and in the case of the Pro and Pro Max models, a new world-facing LiDAR sensor for next-generation AR functionality.

These 4 new models will accompany the 2nd generation iPhone SE launched in spring 2020 to comprise Apple’s most complete lineup of new iPhones ever.

According to supply chain checks, production has already begun for all 4 new models, with the iPhone 12 mini and iPhone 12 Pro Max delayed by 2 weeks relative to the iPhone 12 and iPhone 12 Pro.

We remain buyers of Apple shares ahead of the event and anticipate strong global iPhone demand to drive positive earnings revisions and stock outperformance throughout FY21 (for reference, Apple shares have outperformed the S&P 500 by an average of 1350bps in the 6 months following an iPhone launch over the last 6 years; Exhibit 1).

Raising FY21 iPhone shipment forecast to 220M units (from 218M units). We believe the iPhone 12 launch comes at a key time as iPhone replacement cycles have lengthened to over 4 years exiting FY20 (Exhibit 2), beyond what we consider to be a structural ceiling.

Maintains Overweight rating and $130 price target.

Cue Exhibits 1 and 2:

apple 5G event Huberty

My take: I’d like to hear more about the “structural ceiling” Huberty believes the 4-year iPhone replacement cycle has reached.

6 Comments

  1. Miguel Ancira said:
    If it comes from Katy, I believe it.

    1
    October 7, 2020
  2. Robert Paul Leitao said:
    If the speculation is correct and Apple releases four new handset models, it will be an indication the company believes the smartphone market has matured and additional new models (presumably at different price points) are advantageous to prompt more frequent upgrades.

    Second, by equipping all of the new handsets with the A14 Bionic chip the company is aggressively pushing adoption of its newest and most powerful chip to facilitate consumption of the most advanced services possible. It provides the largest addressable market possible for developers to deliver more advanced apps, more hardware intensive games and to deliver a superior user experience.

    Four new models suggest legacy handsets (other than the iPhone SE) will disappear from the market in favor of 5G handsets with the latest chip technology. This is very good for consumers, very good for developers and very good for the rate of Apple’s Services revenue growth.

    Apple would be pushing 5G adoption at a very quick pace. The better the connection speeds, the faster the rate of adoption of Apple One services bundles.

    5
    October 8, 2020
    • Bart Yee said:
      I agree with the above but also believe Apple will discount and sell existing iPhone 11 models to exhaust inventory and cater to the “4G is fine” and iPhone value market from $500-800, a potential sweet spot to exploit. If older models prove to still have staying power, their useful production lives may be extended a bit longer.

      In addition, there will likely be shifts of older models especially if built in India to be discounted as well for Indian local sale. I truly believe Apple will splash down strongly in India with a wide 7-8 model sales array at all price points above $350-400 USD equivalent. The same strategy may work well in China although 5G is a bigger selling point there.

      2
      October 8, 2020
      • Fred Stein said:
        Agree wholehearted. Apple wants to expand up in functionality and down in price. Last year’s components drop in price, making this easy, profitable, and attractive to consumers.

        Plus it takes profit margin from competitors.

        0
        October 8, 2020
    • Gregg Thurman said:
      the company believes the smartphone market has matured

      I’m on the road between Richmond VA and Spokane, hence no access to my spreadsheets.

      If memory serves me correctly the best selling iPhone ever was iPhone 6. Katy’s estimate of units sold falls short of iPhone numbers. With that in mind I’m in agreement with Robert about product maturity.

      Except for feature enhancements I’m not seeing a “Supercycle”.

      0
      October 8, 2020
  3. Romeo A Esparrago Jr said:
    “ “We remain buyers of Apple shares … “
    Me, too!
    A great endorsement & well deserved. Thanks, Katy!

    3
    October 8, 2020

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