Wedbush: Sunny days in Cupertino with another strong quarter coming

Apple next Wednesday will easily beat the Street’s consensus, says analyst Daniel Ives.

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

We are expecting the iPhone 12 supercycle theme to be front and center on Wednesday after the bell when Cupertino delivers another strong upside March quarter based on our analysis. Our Asia supply chain checks have pointed to another robust quarter for Cook & Co. on the iPhone 12 with builds that have remained relatively constant and upward moving ASPs giving Apple tailwinds likely in the March and June quarters.

The Street is looking for total revenues of $77 billion and EPS of $0.98, both of which should be easily surpassed by Apple this quarter in our opinion.

That said, all eyes will be on June guidance with the Street worried that a moderation in growth and lingering chip shortage will spoil the supercycle party in Cupertino, which we strongly disagree with. We also are expecting another strong services quarter which is slated to exceed $65 billion of revenues in FY21 and remains key to the re-rating in Apple’s stock over the past year.

Maintains Outperform rating and Street-high $175 target. 

My take: Ives set that target three months ago and hasn’t moved it since. For him, that’s a long time.

14 Comments

  1. Jerry Doyle said:
    “…. We also are expecting another strong services quarter which is slated to exceed $65 billion of revenues in FY21 and remains key to the re-rating in Apple’s stock over the past year.”

    Of all the analysts, Daniel Ives gets Apple!

    4
    April 23, 2021
  2. bas flik said:
    chip shortage is mainly caused by apple. they need many chips because of an unprecedented demand for Apple products. tsmc is investing 100 billion. most of it to supply Apple. So the sales levels of apple must be way beyond imagination.

    5
    April 23, 2021
    • David Emery said:
      I don’t think that’s correct, here’s why:

      1. Apple has long term contracts, so it’s not like Apple suddenly jumps up and buys chips on the open market.

      2. A lot of the chips in short supply, such as those used in automobiles, are NOT the same things as used in Apple products (or in consumer electronics/other computers.)

      Now I’m not sure why there’s a chip shortage, but I think Apple’s product demands are unlikely to be the cause.

      5
      April 23, 2021
  3. Fred Stein said:
    Like !

    Especially when he strongly disagrees about the impact of chip shortages.

    2
    April 23, 2021
    • Robert Paul Leitao said:
      David and Fred: Apple doesn’t invest tens of billions of dollars each year on capex, including partnerships with key suppliers, to be left wanting for components. While there might be a slight impact on supply for some common components, Apple designs the chips for its own products and pretty much pre-funds capacity development. If there are supply constraints, they are more apt to be caused by very high demand specifically for the company’s products. In my view, although there’s been a lot of talk about chip supply shortages, the issues remain woefully misunderstood.

      7
      April 23, 2021
  4. Bart Yee said:
    Here’s one view of the chip shortage, particularly in automotive:

    https://www.newscientist.com/article/2271918-theres-a-global-shortage-of-computer-chips-whats-causing-it/

    “Car companies reacted by slimming down manufacturing and reducing orders for parts. This included huge numbers of computer chips, because modern cars contain dozens of them to control everything from braking to steering and engine management.”

    “ At the same time, there was a rush for home office items like laptops and smartphones, vital because many people transitioned to working from home. There was a similar rush for games consoles, so that people had something to do to keep their minds off the global pandemic.
    The big factories supplying manufacturers switched from making car components to smartphone, laptop and tablet chips instead. In fact, production is going stronger than ever in terms of total sales, and the problem is as much about demand as supply.”

    “ But semiconductor factories have limited capacity, and building new factories takes massive investment and often several years. Chip-makers also have incentive to focus their efforts on smartphone and tablet chips rather than on the older technology used in cars which has lower profit margins”

    2
    April 23, 2021
    • David Emery said:
      The implication is that factories can switch from automotive to home electronic chips at relatively low costs/low efforts/quick conversion. I’m surprised by that. I would have thought the machines, etc, to produce high reliability/environmentally tolerant chips would be different from that to produce much smaller but higher transistor count computer chips.

      0
      April 23, 2021
      • Bart Yee said:
        My understanding is most LSI (large scale integration) chips used for automotive functions do not (yet) require cutting edge processes where ultimate speed, energy efficiency, ultra-miniaturization and the attendant high costs. My sense is automakers would be perfectly happy with off the shelf parts built on legacy 10nm processes from 3-4 years ago that are amortized over many years and dropped in price. They work out the electronics infrastructure w/suppliers who work w/their engineers to get the functions they need. Yes, they co-design and validate but, as in the past, they view ALL parts as subsystems of their car platform, something to be JIT inventoried, cost minimized, and plugged in during assembly. Some car companies will invest to get an edge in electronics but it’s hard because like charging infrastructure, etc. it takes massive cash flow for exclusivity (see specialty makers like Porsche, Tesla, McLaren).

        So when major auto chipmakers like Infineon, Renasas, NXP, Samsung etc. were hit with slack auto demand, they moved to other in demand consumer chips for their idle fab lines. And when auto demand picked back up, the consumer demand never waned, leading to a lack of available production lines and chip supply for automotive.

        As for hardened auto environment builds, that’s more the chip packaging in concert with the silicon. Very complicated and here’s a good article about it below.

        1
        April 24, 2021
  5. Bart Yee said:
    This is a hugely technical article discussing cutting edge 5nm chips for automotive AI, autonomous, and full sensor and decision making processing. Gives a big idea on what Apple has been up against and perhaps why it’s taking so long to build out the electronics side of an Apple EV with expected capabilities that some automakers are still working towards. Everyone is learning hard and fast here in the automotive electronics world.

    https://semiengineering.com/using-5nm-chips-and-advanced-packages-in-cars/

    3
    April 24, 2021
    • David Drinkwater said:
      Good read. Thanks, Bart. I know that my factory’s customer base is less automotive than it used to be, but hopefully we can reverse that trend and get a little more of that automotive action.

      1
      April 24, 2021
  6. I’ve tried to get a handle on exactly how many microprocessors are in today’s cars. The numbers run from over 3,000 to 120 chips per car. All different types of chips too. That’s for fossil fuel cars, EVs apparently carry far more processors. Car seats alone are packed with electronics now. The various car manufacturers rely a rather small set of suppliers for this diverse part requirement. While some chips cost pennies, others a buck or more, most are older tech.
    Chip fabs prefer the markup on new phone and console chips. SoC technology is slow to arrive in the automotive sector, under the hood is considered an extreme environment to place advanced electronics. If the chip in your phone fails you are unlikely to get seriously hurt. If the chip that controls your car’s steering or brakes fails you could be in serious trouble. Automotive manufacturers can be slow to change some tech, recalls are a constant concern.
    My 2014 Cadillac was totaled by a flash flood in 2018, all because two computers behind the front seats briefly got wet, no other major physical damage.
    Wouldn’t it be interesting if my next car’s primary computer was my iPhone?

    1
    April 24, 2021

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