UBS: Despite strong end-of-year ‘uplift,’ iPhone sales fell last year in China

With Apple hovering around $130, analyst David Vogt justifies sticking with his soggy $115 price target.

Monthly China smartphone data suggests overall iPhone demand in China was +52% in the month of December and ~+37% in the December quarter. However, despite the strong reported unit growth, we think recent growth rates are flattered by the shift in the launch of the iPhone 12 into October this year compared to the September launch of the iPhone 11 last year. As such, comparing iPhone unit sales in both years on a trailing six month basis to capture the different launch dates suggests iPhone units increased just 0.9% year-over-year in the second half of the year. While prior unit softness was reflected in Apple’s September quarterly results we believe a six month comparison is useful to “smooth” out demand to gauge a more normalized demand backdrop. Lastly, on a full year basis, we estimate iPhone units in China declined roughly 4% despite the strong uplift in the December quarter.

Valuation Method and Risk Statement Risks to our Apple thesis include (1) product delays or less innovative offerings, particularly a decline in iPhone unit shipments in F21; (2) macro weakness dampening product demand, especially in China; (3) reduced product differentiation resulting in a successful smartphone attack from below; (4) governments looking to regulate Apple as its power increases, and (5) poor platform management. We use P/E to derive our price target for Apple.

Maintains Neutral rating and $115 price target. 

My take: Mr. Glass Half-Empty.

12 Comments

  1. Gregg Thurman said:
    You can come up with any kind of thesis if you cherry pick your data. Garbage analysis.

    4
    January 13, 2021
  2. David Emery said:
    I’m reminded of something I read once on a financial statement “Past performance is no guarantee of future results.” In particular, the idea that Apple sales lagged before the new phones were announced dragged down the average for the year does NOT provide a solid prediction for what will happen in early 2021 with those new phones.

    So this is “glass half-empty” that ignores the fact that there’s a lot more water pouring into the glass.”

    6
    January 13, 2021
  3. Horace Dediu said:
    I miss Steve Milunovich.

    3
    January 13, 2021
  4. Alan Birnbaum said:
    “we think recent growth rates are flattered by the shift…
    ( flattened)

    The quality of the writing reflects the quality of analysis.

    4
    January 13, 2021
  5. Fred Stein said:
    Can anyone, including D. Vogt explain this? “(3) reduced product differentiation resulting in a successful smartphone attack from below;”

    Actually Apple attacks and wins in the below $400 range with used iPhones.

    And Apple has a double edged sword. Trade-ins drop the net cost for new iPhones below $400 and add to the supply of used iPhones, with years of useful life remaining.

    2
    January 13, 2021
    • Bart Yee said:
      Yes! Counting iPhones in China is only half the answer, this completely ignores the trickle down used iPhone market and the overall uptick in Services sales for new and old iPhones, plus iPhone 12 accessories and Wearables. iPad and Mac sales in China, if steady, would also be good news.

      1
      January 13, 2021
  6. Rodney Avilla said:
    ” We use P/E to derive our price target for Apple.”
    Bottom line? He uses a formula with what he feels the P/E ratio should be: 33. Right now it is pushing 40. All of his other verbage is just a way to justify his P/E.

    1
    January 13, 2021
    • Bart Yee said:
      He’s also not taking into account that buybacks will reduce shares yet again (I’m modeling about $18B at avg. $116/sh. = ~155M shares taken back or ~0.92% down to 16.67B shares). That will raise EPS and reduce PE. If earning are very good, the PE will have room for expansion again.

      0
      January 13, 2021
  7. Gregg Thurman said:
    Dear Mr. Vogt,
    Sometimes it’s better to remain silent and have people think you stupid, than it is to open your mouth and confirm it.

    3
    January 13, 2021
  8. Bart Yee said:
    “Risks to our Apple thesis include
    (1) product delays or less innovative offerings, particularly a decline in iPhone unit shipments in F21”

    Less innovative??? The iPhone SE 2020 sold well on true basis of price and iOS. The SE3 Plus if coming should enhance that value thesis foe those who don’t need 5G costs. U less there is a huge resurgence of Covid, product delays should not be a problem.

    “(2) macro weakness dampening product demand, especially in China”

    China has recovered faster and controlled Covid better than most. As vaccination happens over next 3 quarters, economies begin to recover, liquidity remains, spending goes up.

    (3) reduced product differentiation resulting in a successful smartphone attack from below;

    Uh, Apple is super differentiated from Android makers by design. When iPhone 13 comes out, guess what, all 5G iPhone 12 models get discounted.
    Apple will have a very wide full scope price wise of 4G and 5G offerings by October 2021 worldwide.

    0
    January 13, 2021
    • Bart Yee said:
      “(4) governments looking to regulate Apple as its power increases”

      This is a concern but there is no visibility on what may happen or how it could affect Apple financially in the various vulnerable countries. Meanwhile, Apple’s business will be rolling along. If the hit is in the App Store fees, a minor setback for Services. Then there’s the potential for Apple to recover $14+B from the Ireland Tax case.

      “(5) poor platform management”

      My take: You’ve got to be kidding.

      0
      January 13, 2021
  9. Bart Yee said:
    Given that 2020 was a lousy, external event driven, outlier of a year, this analysis takes a “flattening” point of view. Yes, Apple iPhone 11’s fell off in China as 5G models competed and reduced demand hit all smartphone makers, not just Apple. Recovery of demand over the last 4-6 months shows economic momentum that this analyst deigns to ignore. Going forward into 2021, China may continue with flat or reduced demand overall but Apple 5G iPhone offerings are positioned to continue to take market share if not actually grow YOY given the relatively soft YOY compares in China (except for 1/2 of FY Q2.

    A bigger slice of a slowly contracting pie may still be good for Apple and the corresponding Services, Wearables and accessories revenue should increase China revenue overall. Economic recovery will support this thesis.

    0
    January 13, 2021

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