Katy Huberty went after Apple bears with both barrels today

From the second of two Apple notes to Morgan Stanley clients that landed on my desktop Thursday:

Apple product builds and demand data suggest outperformance is likely in the June quarter. We believe Apple is outperforming June quarter guidance and consensus expectations despite component tightness. For example, our Greater China Research colleagues have revised June quarter iPhone builds 14% higher over the last 4 months, to 44.5M units (+6% Y/Y; Exhibit 8) vs. 39M builds estimated back in February 2021. If we assume the historical seasonal relationship between iPhone builds and iPhone shipments holds true in the June quarter (when Apple typically drains channel inventory) iPhone builds imply 44.3M iPhone shipments in C2Q21, 2% ahead of our recently raised 43.3M shipment forecast (Exhibit 9).

We believe the iPhone strength is a product of strong global demand for 5G devices, but also a function of a retail store footprint that is now fully re-opened, and Apple accelerating adoption of trade-in, financing and installment programs.

Apple’s recent iPhone outperformance in China is most notable, as we estimate iPhone shipments in China grew 35% Y/Y in the month of May vs. 37% Y/Y shipment declines for domestic Chinese smartphone vendors (Exhibit 25). In fact, we estimate iPhone shipments have grown faster than domestic smartphone vendor shipments in China each of the last 8 months except for March 2021. This has helped Apple gain smartphone installed base share in China for 9 consecutive months, reaching a 2-year high of 20.5% in May 2021 (Exhibit 20).

Similar to iPhone, iPad builds also show upward pressure to shipment estimates in the June quarter, where our Greater China Research colleagues forecast 16.8M iPad builds (+28% Y/Y), implying 17.6M iPad shipments, 14% ahead of our recently raised 15.5M June quarter iPad shipment estimate (Exhibit 12).

While AirPods are one product where we recently revised our June quarter shipment estimates lower, we’d note the iPhone and iPad represent 60% of Apple’s revenue vs. just 4% for AirPods. Lastly, through the end of May, the App Store is trending 3 points ahead of our +11% Y/Y June quarter growth forecast (Exhibit 30). Collectively, these data points give us confidence that Apple can outperform June quarter expectations, and we are now 1-2% ahead of consensus June quarter revenue and EPS estimates.

Maintains Overweight rating and (recently raised) $162 price target. 

My take: This is one of those chart-heavy Morgan Stanley IT Hardware Data Tracker notes. Below: The iPhone’s market share growth in China…

apple katy huberty both barrels


  1. Gregg Thurman said:
    AAPL’s price has flattened, just as my historic trend chart indicated it would, this week.

    Next week, assuming AAPL continues to follow its historic trend, AAPL will trade flat to down going into the shortened July 4 week (where it historically bottoms for calendar 2H).

    June 24, 2021
    • Gregg, This summer will be different. Brokers and bankers are back in their tall buildings and expected to remain there working. ZOOM participation is no longer enough. They spent the last year in their shacks on Long Island or up in the Berkshires anyway. Big checks require face-to-face with big bosses. The summer low-volume doldrums are unlikely. There’s urgency around the impacts of Meme trader assaults on short positions, Bitcoin and inflation, along with possible SEC enforcement action (whatever that could possibly be). Investment bankers aren’t as certain as I am their FAANG cash machine won’t be throttled by government enforcement actions somewhere in the world.
      History always has hiccups. This year’s history is being re-written by an ongoing global pandemic.

      June 24, 2021
      • Gregg Thurman said:
        They spent the last year in their shacks on Long Island or up in the Berkshires anyway.

        You may be right, but one year does not a trend make. My chart spans 10 years and all kinds of conditions.

        Another point my charts show is that the standard deviation between projected prints and actual prints is a very tight 2.84.

        This compares to
        Sept qtr 2020 24.16
        Dec qtr 2020 7.84
        Mar qtr 2021 5.64

        June 24, 2021
  2. I don’t often agree with Darrell Issa, hi-fi stereo magnate and US rep from California’s 50th, but the bills that passed committee early this AM will die in the Senate. The one exception is the bill that increases merger fees to fund more oversight/enforcement actions. There are too many deep-pockets in this fight, too many unknowns and US tech is a roaring engine few in the Senate want to be known for throttling.
    Rep. J. Jordan finally decided the tech bills didn’t meet the approval of the groundskeeper of the Bedminster Country Club. That’s a wrap for the 2021 Assault on FAANG.

    June 24, 2021
    • Bart Yee said:
      I don’t much care for Issa and I didn’t know of any “hi-fi stereo magnate” reputation either. This New Yorker article only listed him as a Consumer Electronics Association Chairman and lobbyist, plus taking over, owning and running a car alarm maker and a couple of other electronics firms. Allegations of many shady or otherwise suspicious actions and deeds in personal or business life dogged / discouraged him from seeking higher office, although today maybe it’s just too late.


      June 24, 2021

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