Daniel Ives: Epic ruling is just Apple background noise

From a note to Wedbush clients that landed on my desktop Sunday:

The main event for Apple is on deck for Tuesday when Cook & Co. launch the iPhone 13 in a virtual format which we expect will continue the all-important supercycle iPhone upgrade cycle well into 2022.

Taking a step back, Apple remains in the midst of its strongest overall product cycle in roughly a decade… Asia supply chain builds for iPhone 13 are currently still in the ~90 million unit range compared to our initial iPhone 12 reads at 80 million units (pre-COVID) and represents a ~10%+ increase YoY out of the gates.

From a spec perspective, we have increased confidence that iPhone 13 will have an eye-popping 1 terabyte storage option, which is double from the highest Pro storage capacity today (512GB) and will also include a number of key enhancements with Lidar across all iPhone 13 models…

In a nutshell on the iPhone front, we believe the robust consumer product cycle continues globally for Cook & Co. especially with today roughly 250 million of the current 975 million iPhones not upgrading their smartphones in over 3.5 years based on our analysis, speaking to massive pent up demand within Apple’s installed base.

Regulatory pressures look containable for now… We estimate in a worst case scenario that Apple would lose roughly 3% of total revenues (4% of EPS) from this App Store change to gaming publishers and likely this will be closer to a ~1% revenue and EPS headwind the next few years given we believe the vast majority of consumers will continue to use the App Store for in-app purchases.

Maintains Outperform rating and (Street high) $185 price target.

My take: He’s right about what the vast majority of consumers will do.

REMINDER: Ives will be our guest for a Zoom call Thursday evening at 7:00 p.m. Eastern. To sign up, send email to ped@ped30.com with “Daniel” in the subject line — subscribers only, please. Not an Apple 3.0 subscriber? Easily solved. Click here.

14 Comments

  1. bas flik said:
    info we have received from carriers in the netherlands told us there will be no changes in memory for storage. so according to my info no 1 terabyte storage option. we will see how reliable carrier info is.

    1
    September 12, 2021
    • Bart Yee said:
      @bas
      Thank you for that info. Probably not worth having 2 extra SKU’s for the Pro models to have 1TB options plus with the chip shortages, 1TB or 2x 512GB chips could be costly and not in Apple’s favor for marketing, price, or profit. A 1TB option would probably cost $500 above base Pro Max total being $1599 minimum. IMO, Apple would rather have those folks use the 2TB iCloud storage option at $9.99 per month, making the same revenue in 20 months over the incremental upgrade over the $1399 512GB Pro Max and then continuing beyond. This would also shift revenue from hardware side to Services side.

      0
      September 12, 2021
  2. Jerry Doyle said:
    It would be shocking to me if Apple loses a perceptible percentage of total revenues from its App Store change to gaming publishers. I am not being facetious. It just will not happen.

    3
    September 12, 2021
  3. Gregg Thurman said:
    Except for occasional massively uninformed general media pieces, I’m seeing more and more informed analysis stating the Epic rulings are as Ives puts it: noise. I doubt there will be many questions during Apple’s earnings conference call about it, instead WS will be looking for more clarity on supply constraints, if any.

    I will be paying attention to Apple’s COVID induced fuzzy guidance as my primary investment driver. WS, in general, is just too damn conservative with a consensus +/- standard deviation you could drive a large truck through.

    0
    September 12, 2021
  4. Robert Paul Leitao said:
    The bottom line: Epic got a hard-hitting smackdown by the courts. As Mr. Ives suggests, everything else is just background noise.

    6
    September 12, 2021

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