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.
Of all the analysts, Daniel Ives gets Apple!
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.
Especially when he strongly disagrees about the impact of chip shortages.
Steve Jobs created a great environment for creative and deeply moral capitalism, but it took a Tim Cook to really make it, well, cook.
More than that, actually. A less enlightened company would have ignored people and the environment on their way to massive growth. (Amazon comes to mind, which built its Cloud empire on dirty energy.) But not Apple, thanks to the Steve and Tim tag team.
Which is another reason it really sticks in my craw when I see Congress-Critters bashing Apple without actually knowing all the facts. I’ve said it before and I’ll say it again: Rather than going after Apple hammer and tongs, those folks should be giving it a medal.
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”
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.
https://semiengineering.com/packaging-chips-for-cars/
https://www.reuters.com/article/chips-shortage-explainer-int-idUSKBN2BN30J
Fires (Japan, Renasas), drought (especially for Taiwan, TSMC), snowstorm (Texas, Samsung, NXP and Infineon), all conspired to slow automotive chip production heavily just as auto demand and production picked back up.
https://semiengineering.com/using-5nm-chips-and-advanced-packages-in-cars/
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?