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…
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).
History always has hiccups. This year’s history is being re-written by an ongoing global pandemic.
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
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.
http://www.newyorker.com/magazine/2011/01/24/dont-look-back-ryan-lizza
The weekly option gamblers have lost a ton this year, and I can’t wait until they go broke or find another pony to bet on. The supply of weekly call writers for AAPL contribute to the cheap lottery tickets, so they’re part of the problem as well.
Options are reactive to sentiment for the underlying equity. They are not causal. Calls generally reflect positive sentiment, while Puts generally reflect negative sentiments. I say generally because you can buy Calls (positive sentiment) or sell Calls (negative sentiment). Both are available at the same time, ergo they can’t be the REASON an equity moves, although Open Interest can be an indicator of which direction, and by how much, the market believes an equity is going to move in the short term, mid term and long term.
Remember, for every Call buyer there is an equal number of Call sellers. +1 -1 equals net zero impact on an equity’s prints.
My Weekly strategy (that utilizes Call Spreads) doesn’t care if AAPL goes up or down, as long as AAPL doesn’t decline more than about a $1.00 from Monday’s intraday low. The deeper in-the-money I go, the lower my risk, and by extension the lower my ROI. On average since the beginning of this fiscal year (all trades both good and bad) AAPL has gone up about $2.10 from Monday’s intraday low.
I try to main an average ROI of 25% on invested funds per week. Monies I have lost since January 1 have, without exception, come from the market’s irrational reaction to Apple’s earnings reports for the Dec and Mar quarters. Holders of AAPL lost value during this period as well.
Today’s intraday low is the first and only print above AAPL’s intraday low following April’s earnings report.
Bottom line is that there is no reality in the belief that Options move pricing on equities. That myth (and many others) are the result of WS double speak meant to convey possession of special knowledge not available to uninformed retail investors.
All investing is a form of gambling. Every trade involves an investor that made the right decision, and an investor that made the wrong decision. The exact same dynamic is true of Options investors.
“Remember, for every Call buyer there is an equal number of Call sellers. +1 -1 equals net zero impact on an equity’s prints.”
Do you really believe this?
If Options truly had zero impact on an equity’s prints, why would we have phenomena like Triple Witching and Max Pain?
This is good stuff! Truly analysis from the trenches!
Off topic, I noticed this AM that my proposed petition backing Apple in the present US Congress attacks picked up a couple of additional upvotes overnight. The petition can be found in the comments section to “Apple antitrust: The view from Madrid”.
https://www.ped30.com/2021/06/23/apple-antitrust-madrid/
Please consider showing your support for the petition by going to PED’s story yesterday, scrolling down to comment #8, and upvoting it.
If I get enough upvotes, maybe we can convince PED to make it official and write a story promoting it.
Thanks, folks!
If call walls are high enough (relative to puts at any given strike), this creates resistance for the share price to go higher, allowing the writers to keep the premium, if not from expiration then from option decay (w/regard to LEAPS, etc.)
There’s a somewhat self-fulfilling aspect to this phenomena, as retail and institutional money might hesitate buying the equity if the call walls suggest limited upside due to the perception on where AAPL might trade given published open interest that can be viewed at http://www.theocc.com.
I don’t deny sentiment plays a role with where Apple trades, but after the recent 2 blowout earning calls, sentiment is clearly NOT driving the bus. I’m not saying it’s all option volume either, but one should pause as to why open interest is 5x higher than its FANG brethren.
My opinion: Institutions are using AAPL like an annuity, collecting option premiums from expiration and decay by simply not owning it as deep as they do MSFT, FB, etc., which is clearly supported per reference to institutional ownership for these stocks.