Morgan Stanley: iPhone, notebook sales hit records

Analyst Katy Huberty forecasts PC builds in the March quarter up 90% (albeit from pandemic lows).

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

We continue to believe that the iPhone will outperform expectations in the December quarter, as the mix shift to higher-end iPhone 12 models is a tailwind to ASPs and revenue growth. iPhone 12 Pro lead times remain extended far beyond any model launched in the past 4 years at 10 days. Lead times decreased from 22 days ~2 weeks ago as Apple ramps iPhone 12 production signaled by our iPhone supply chain team, led by Sharon Shih, recently raising March quarter iPhone 12 Pro builds by 2M units (which offset a 2M build reduction for the iPhone 12 mini)

In China, we believe lower end iPhone 12 models are performing better than in the US, and we estimate iPhone shipments grew ~47% Y/Y in the December quarter, according to data from the CAICT (Exhibit 25). Similarly, data from Jiguang shows that the iPhone gained over 50bps of smartphone installed base share in China (Y/Y) in the month of December, reaching a new 18 month high of 20.3% market share, driven in large part by adoption of the iPhone 12, which has captured the most iPhone installed base share of any iPhone launched in China over the past 4 years through the first full month after being launched (Exhibit 20).

Finally, results from Apple’s Taiwan supply chain points to a 3rd consecutive month of accelerating Y/Y revenue growth (to +20% Y/Y) and a third consecutive month of stronger than seasonal growth, suggesting solid momentum as we head into the March quarter (Exhibit 1).

PC data points remain strong. In the last two weeks, we’ve learned that PC shipments continue to outperform, most notably in notebooks. For example, IDC’s 4Q20 preliminary PC shipment estimate of 91.6M units (+26% Y/Y) exceeded our forecast by 10% and marked the strongest quarterly growth rate since 3Q99. Additionally, December 2020 monthly notebook ODM builds exceeded our PC supply chain teams’ forecast by 5%, despite component constraints. Looking forward, our PC supply chain team is forecasting March quarter notebook builds grow 90% Y/Y (emphasis mine), to 44.85M units, an acceleration from 48% Y/Y growth in the December quarter (Exhibit 52). Assuming the historical seasonal relationship between notebook builds and shipments holds true, this would imply 63.1M notebook shipments, 27% above our current 49.7M notebook shipment forecast. As a result, we are increasingly bullish on PC and PC peripherals vendors and believe that a structural shift towards notebooks with shorter replacement cycles will be a tailwind to the industry growth rate.

Maintains Overweight rating and $144 price target. 

Below: Three eye-popping exhibits:

apple morgan record sales

apple morgan record sales

apple morgan record sales

My take: This month’s Morgan Stanley data dump includes 101 numbered exhibits. I’ll spare you the air quality readings from Zhengzhou, Shenzen, Chengdu and Chongqing. Suffice it to say the skies over China’s major electronics manufacturing cities are extra smoggy.

9 Comments

  1. Tommo_UK said:
    “iPhone 12 Pro lead times remain extended far beyond any model launched in the past 4 years at 10 days. Lead times decreased from 22 days ~2 weeks ago as Apple ramps iPhone 12 production signaled by our iPhone supply chain team, led by Sharon Shih, recently raising March quarter iPhone 12 Pro builds by 2M units (which offset a 2M build reduction for the iPhone 12 mini)”

    Katy needs to give Sharon a wake up call. 10 days? Maybe in the US or China. As I tirelessly continue to say, in the U.K. – one of Apple’s most profitable cash cows and the subject of exchange rate manipulation to overcharge U.K. customers by 15-20% Apple’s preferred network partner EE has a 6-8 week lead time for Pro Max 512GB models and has done since the beginning of December.

    Yet you can buy one through the online Apple store for overnight collection.

    It’s not good enough for Apple to hoard its own stock and not play fair with its key partners. I’ve never seen a disparity like this and it isn’t healthy either.

    Especially while it overcharges U.K. customers by 15-20% across its product ranges even after allowing for fluctuations.

    1
    January 20, 2021
  2. Jerry Doyle said:
    There was much discussion yesterday among business news anchors and their guests on numerous business programs of “revenge spending” taking place in China. The term refers to the desire of Chinese consumers no longer in lockdown mode going out and spending madly on luxury goods items. These would be such luxury goods brands as Burberry, Yves Saint Laurent, Christian Dior, Cartier, Gucci, Prada, Hermès, Chanel and Louis Vuitton to name some of the top brands. Now, the question that I ask in extrapolating just who all revenge spending covers is to what degree is Apple included. Many view Apple’s brand as an upscale brand when it comes to tech products. So, something tells me that Apple benefitted to a degree in China from this “revenge spending,” perhaps even gaining new Chinese consumers into the iOS ecosystem. The next extrapolation one could surmise is once the lockdown is lifted fully in the USA that it seems logical to assume US consumers also will emulate their Chinese consumer brethren’s desire to go out and also do “revenge spending.” Here again, Apple may very well benefit from this new consumer desire.

    4
    January 20, 2021
    • Fred Stein said:
      Thanks for the contribution, Jerry.

      Apple’s products have 3 advantages in China. 1) Pent up demand for new tech 5G and Apple Silicon. 2) Luxury status at fair prices. 3) Aforementioned revenge spend.

      And used iPhones increase the number future iPhone upgrade sales.

      0
      January 20, 2021
  3. bas flik said:
    still low availability in Europe for iphone pro. Carriers have almost nothing, but even traders in Europe can not deliver. is not normal. normal 12 and mini are in well supply. Max is becoming better though not all models. So lots of demand will carry through. In the meantime Samsung lacks traction with S21 introduction. To me a historical breaking point. Samsung capitulates to Apple. Apple Army is now preparing a big battle to conquer India. Maybe they will find a few 100 mio extra customers in India willing to pay a lot of money to make us all happy.

    1
    January 20, 2021
    • Gregg Thurman said:
      My Weekly Call Spreads are up big time this morning. Estimated ROI is successful is ~48%. All I need to achieve is having AAPL Close above $127 this Friday.

      1
      January 20, 2021
  4. Mordechai Beizer said:
    I bought a 131/135 call spread this morning expiring 1/29. Not sure if I’ll close it before or after earnings.

    0
    January 20, 2021
    • Gregg Thurman said:
      Good luck Mordechai. That’s more aggressive than I have the stomach for, although I can readily some $135+ by then.

      0
      January 20, 2021
      • Mordechai Beizer said:
        @Gregg, it doesn’t have to hit $135 to be positive. It just has to be somewhat above $131. Anything over $135 yields the maximum value on the spread, but there’s no extra gain if it goes over $135.

        0
        January 20, 2021

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