Here’s why Apple popped

From Bloomberg’s “Apple Seeks Up to 20% Increase in New iPhone Production for 2021” posted early Wednesday:

Apple Inc. has asked suppliers to build as many as 90 million next-generation iPhones this year, a sharp increase from its 2020 iPhone shipments, according to people with knowledge of the matter.

The Cupertino, California-based tech giant has maintained a consistent level in recent years of roughly 75 million units for the initial run from a device’s launch through the end of the year. The upgraded forecast for 2021 would suggest the company anticipates its first iPhone launch since the rollout of Covid-19 vaccines will unlock additional demand. The next iPhones will be Apple’s second with 5G, a key enticement pushing users to upgrade.

This year’s update will be more incremental than last year’s iPhone 12, emphasizing processor, camera and display improvements, the people said, asking not to be named as the plans are not public. Apple is planning updates to all of the current models, spanning the 5.4-inch and 6.1-inch regular versions and the 6.1-inch and 6.7-inch Pro models. The phones, codenamed D16, D17, D63, and D64, are all expected to be announced in September, earlier than last year’s October introduction partly thanks to the supply chain recovering.

At least one of the new versions will have an LTPO (low-temperature polycrystalline oxide) display capable of alternating its refresh rate based on the content being shown. Apple has used this technology in the Apple Watch for several years, allowing the screen to be slower in certain situations — such as the Always On mode — to extend battery life. Oppo, OnePlusand Samsung Electronics Co. already have LTPO screens in their flagship phones. The new iPhones with LTPO displays will also use IGZO (indium gallium zinc oxide) technology for improved power efficiency and responsiveness.

My take: The Street was primed for news like this.

20 Comments

  1. Rick Povich said:
    See?!! Apple is an iPhone company. It can’t sell iPhones forever! Law of Large numbers! People will stop buying iPhones and buy Android! Apple is doomed!…

    9
    July 14, 2021
  2. Bart Yee said:
    IMO, Apple is making some huge strategic moves if this order proves correct.

    1. Locking in production capacity worldwide while able and getting all factories trained on current assembly. All facilities are ramping up hiring WITH emphasis on Covid mitigation which benefits its workers and local communities.

    1a. Locking in component orders especially where Apple has very strong leverage for pricing, priority, and production. Meanwhile, all other tech and even automotive may have to take lower priority or even still suffer shortages unless first and second component sources build out more production capacity (which will be a slow to modest ramp up at best IMO unless backed with Apple levels of investments). That is the genius of Apple directly investing in its suppliers.

    2. It would not surprise me if Apple has a hand in getting effective Western vaccines and PPE to all factories (save for Mainland China) and workers as a condition of employment, again benefitting workers’ and communities’ safety and incomes while insulating against supply line disruptions.

    3. In the event of localized outbreaks causing reflexive factory slowdowns, production is more widely distributed worldwide and long term disruptions can be minimized.

    4. An order this large is Apple betting on itself that demand will remain robust in Q1 and Q2 and Apple aims to meet demand while it is hot. Also, assuming Western pandemic economic recovery continuing, this holiday season could exceed last year’s, especially with almost all Apple Stores open and in-person purchasing of all Apple products rebounding.

    5. An offshoot of this preordering is a much more predictive product mix reflecting last year’s experience. The iPhone 13 mini will have reduced priority while the larger models will see the bulk of production. That said, imagine if the iPhone 13 mini had improved battery life and came with a price drop to $599-$649 to drive sales? I think that could pull in many fence sitters with the lowest priced flagship iPhone ever offered. Or carriers could make that price pitch.

    6. Some analysts will see reduced wait times if preintroduction inventory is high and misinterpret as sluggish demand. No matter, Apple will adjust its supply (JIT production?) to match market conditions.

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    July 14, 2021
    • Dan Scropos said:
      Great points, Bart. Should Apple also decide to price these new phones aggressively, it will absolutely destroy the competition (even more than it has already). I suspect they will.

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      July 14, 2021
      • Gregg Thurman said:
        it will absolutely destroy the competition

        A very nice thought, but Apple doesn’t want to do that. Right now Apple’s strongest defense against anti-trust advocates IS the presence of competent competition. If anything Apple benefits more from a growing, strong competitive environment than without.

        Apple people are Apple people. By that I mean they will pay more for Apple hardware and Services. Apple should maintain premium pricing (maybe even raise prices a bit), giving room the the fragmented Android industry to price higher than they do now. The thing is they won’t. Competing against each other they will be in a constant race to the bottom.

        1
        July 14, 2021
        • Bart Yee said:
          @Gregg

          I don’t disagree with your thinking but then what of the iPhone SE 2020 model and its $399 pricing? If the refresh due in 2022 Spring comes with an A14, larger screen, effective battery, and still sells for $399, would some claim Apple is underpricing it, selling at a loss, or unfairly competing?

          The odd thing is many claim Apple is overcharging for their products, services, or access to their ecosystem. If Apple charges less for some things, do they then claim Apple is taking advantage of their advantages and “unfairly” charging too little?

          If you’re Apple, you can’t win either way, damned if you do and damned if you don’t.

          1
          July 14, 2021
          • Gregg Thurman said:
            If the refresh due in 2022 Spring comes with an A14, larger screen, effective battery, and still sells for $399, would some claim Apple is underpricing it, selling at a loss, or unfairly competing?

            The best answer I can give to that is that there will always be those that claim Apple is a monopoly and in violation of the Sherman Anti-Trust Act.

            2
            July 15, 2021
    • Jerry Doyle said:
      @Bart Yee: Excellent summation brother Bart Yee. I enjoy reading your summaries better than those of the pros.

      1
      July 14, 2021
      • Robert Stack said:
        @Jerry: I second that emotion! I too really respect Bart for his insightful comments, but the rest of you are not slackers either! I have learned so much from ALL of your commentary since I made my fateful decision to sign up for PED’s “e-fishwrap”…

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        July 14, 2021
  3. Jacob Feenstra said:
    Part of suppression of the stock might have been that the bigger stock holders reasoned that Apple came out of a bumper season due to 5G upgrades: time to take a breather. But various of us have said repeatedly the the 5G cycle would be a prolonged one. The latest news on a 20% increase in production just proves the point.

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    July 14, 2021
    • Jerry Doyle said:
      @Jacob Feenstra: “…. But various of us have said repeatedly the the 5G cycle would be a prolonged one. The latest news on a 20% increase in production just proves the point.”

      Don’t forget Dan Ives. Dan from Day 1 has been reiterating this critical fact until other analysts agreed begrudgingly.

      1
      July 14, 2021
  4. Bruce Oran said:
    A few months ago I was reminded and commented about PED’s reporting on the compression effect. Well, here we see that compression uncoiling and releasing that pent up energy. As a reminder or for those who did not read it at that time:
    PED use to report on the compression spring effect of Apple’s share price, reducing the height (share price) by the coils being artificially telescoped into one another by analysts. Increasing the number of coils (products, profitability, etc.) without taking this into account by Wall Street allows for a bigger “pop” linearly when the sheer tension of the coils (profits, dividends, free cash flow, lines of revenue, innovation, and products) can no longer hold this upward decompressive force back. Some of the banks these sell-side analysts work for are the very ones who were buying up the stock when the coils were most tightly wound and profited the most when it uncoiled!
    Now we see what happens when it uncoils. Fortunately, Apple has been taking advantage of this effect through its buybacks!

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    July 14, 2021
    • Bart Yee said:
      @Bruce Astute observation. Boooiiinnnggg!!!

      2
      July 14, 2021
      • Bart Yee said:
        Or the video game where the ball is constrained by walls and moves ever faster as it bounces inside aided by each time it hits your paddle until it finally, aptly becomes a Breakout!

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        July 14, 2021
  5. Miguel Ancira said:
    And I do not think we have seen anything on what is to be the greatest contribution from the company, which is health care.

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    July 14, 2021
  6. Daniel Epstein said:
    I wonder if this is part of funds partly correcting the underweight in Apple stock they have been trying to include in indexes. Could be acting like a short squeeze just a little less violent. Pre earnings report rise is also involved. If the stock starts trading sideways or lower going to earnings report then I will recognize this pattern. If the stock starts trading more in line with the Dow Jones then I think this we will be coming to an end of the perplexing price action disparity of Apple Vs Dow despite outstanding earnings reports. Of course if stocks respond poorly to good/great earnings reports like the last few quarters then we are still in “buy the rumor sell the news” action.

    0
    July 14, 2021
  7. Gregg Thurman said:
    If the stock starts trading sideways or lower going to earnings report

    My 10 year trend chart indicate that AAPL is going to finish next week essentially flat (with a negative bias) next week and then into Wednesday’s earnings report.

    1
    July 14, 2021

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