Wedbush: Damn the chip shortages, full M1X-speed MacBook Pros ahead

From a note to clients by analyst Daniel Ives that landed on my desktop Friday:

On Monday Apple will be hosting another virtual product launch which we expect Cook & Co. to launch a handful of products led by the MacBook Pro and likely the new AirPods 3. Ironically, in the face of the biggest chip shortage seen in decades Apple is launching two key products into holiday season speaking to the company’s confidence around getting the new Macs/AirPods into customer hands by holiday season despite the doomsday supply chain skeptics.

With Apple’s new Silicon chips front and center Cupertino continues to refresh its hardware ecosystem across the board with Monday a long anticipated day for Mac Pro power users to finally get the the new Apple chips on board.

The star of the show at the event will be the new M1X-powered MacBook Pros with 14-inch and 16-inch models. The new MacBook Pros are expected to feature a mini-LED display, an HDMI port, MagSafe for charging, among other new feature.The proprietary M1X processor is the foundational part of this MacBook and ultimately we believe will be a game changer that will convert 30%+ of current MacBook users to upgrade over the next year catalyzing growth on this hardware segment…

The biggest wild card heading into Monday is around the AirPods 3 launch, does it happen or not? We know based on our supply chain checks that the new AirPods 3 have been built, manufactured, and awaiting shipment globally but will Apple ultimately unveil these Monday remains a debatable issue within the Apple tech community.

Maintains Outperform rating and $185 price target.

My take: For me, the biggest wildcard is AAPL’s performance after the event. Lately, there’s no good news from Apple that hasn’t gone unpunished.

19 Comments

  1. Gregg Thurman said:
    For me, the biggest wildcard is AAPL’s performance after the event.

    Long before the crazy reaction to the blowout quarters of 2020, AAPL followed a pattern of buy the rumor leading up to events, then sell the news once the event began. I don’t see any reason why that irrationality will subside this year.

    5
    October 16, 2021
  2. Robert Paul Leitao said:
    I don’t worry about the immediate impact of special events on Apple’s share price. I concern myself with the relevance of Apple products in the enterprise, education and consumer markets. As long as Apple products and services are highly relevant to those who use them and assist in boosting productivity in its many forms, the share price will continue to move higher. I look forward to Monday’s event not so much for its immediate impact on the share price but for impact the announced products will have in the lives of those who choose to use them.

    10
    October 16, 2021
  3. David Emery said:
    I’m expecting to order a 16″ MBP Monday afternoon 🙂 🙂

    The primary feature I want to see in the new machines is an SD card slot. That’s not a deal-breaker if it’s missing, but it’s a deal-maker if it’s present. Having to carry an SD dongle is Yet Another Thing in my bag when traveling. I could get by with 8gb of RAM, but would prefer 16gb. But I’ve found that 1TB storage is pretty much essential, it’s enough for my normal files, etc, my extensive music collection, and enough extra space for lots of photos.

    0
    October 16, 2021
  4. Michael Goldfeder said:
    So far this year Apple’s stock price has been in bargain basement territory except for perhaps 2 weeks at the most. I’m anticipating another impressive presentation by Apple, but the yawn from analysts with their usual mantra of: “Incremental changes only and no real innovation from Apple since Jobs left” will keep the stock down for more buybacks at cheaper prices.

    As a long term investor, you get more bang from a $90 billion Buyback at $140ish than you do at $175. The EPS this quarter and next are going to be substantially higher as a result. Followed by Rod and Tony S. with their tired old comment: “Comps moving forward will be very difficult to achieve as these larger numbers dictate.”

    3
    October 16, 2021
    • Robert Paul Leitao said:
      Michael: I agree. From a long-term shareholder’s perspective, there’s a bigger benefit from shares repurchased in the current trading range than $30 north of the current trading range. In Jim Suva’s note that was referenced in Apple 3.0 yesterday, he stated share price appreciation is likely to be driven by fundamentals and not multiple expansion. I’m willing to wait on the share price provided Apple is moving ahead on product innovation that will lead to revenue and earnings growth.

      3
      October 16, 2021
    • Gregg Thurman said:
      As a long term investor, you get more bang from a $90 billion Buyback at $140ish than you do at $175

      At some point you’re going to want AAPL to trade much higher relative the S&P than it is now, buybacks or no.

      Personally, I don’t care, options are providing me a very nice supplement to my structured retirement income. I don’t have to worry about my stock treasury shrinking as I sell it off.

      4
      October 16, 2021
  5. Jerry Doyle said:
    “…. We know based on our supply chain checks that the new AirPods 3 have been built, manufactured, and awaiting shipment globally but will Apple ultimately unveil these Monday remains a debatable issue within the Apple tech community.”

    Please excuse my naïveté, but what am I missing here? If the AirPods 3 are built, manufactured and awaiting shipment globally why not unveil them? Supply chain constraint issues are going to be around for some time, no matter. So, I suspect that is not the reason. I welcome enlightenment.

    1
    October 16, 2021
    • Bart Yee said:
      Hi @Jerry, there is one possibility for a delay: another third announcement event for AirPods 3, Mac Pro desktops and servers, plus possibly HomePod, the oft-rumored (at least here) AirPort Extreme (some-flavor of) 5G, and new MagSafe and AirTags updates. Maybe they’ll call it “Accessories Assemble!!”.

      The more practical issue is maybe building a few more weeks worth of AirPods 3 inventory before being “unleashed” unto the world. AirPods 3 production was rumored for Vietnam but apparently kept to China due to (relatively less) COVID and supply disruptions being an issue for Vietnam.

      0
      October 17, 2021
  6. Gregg Thurman said:
    I just am not buying supply constraints with regard to Apple’s products. For a long time Apple has demonstrated a willingness to prepay its orders.

    If you think about it for the moment, that benefits Apple greatly, in that TSMC production belongs to Apple, not someone who finds themselves short because they underestimated demand.

    My take is that Apple takes possession of end of run inventory and sets it aside first, instead of at the end of a product year. Underestimates of demand/yield problems then are resolved over time from EXISTING inventory. This only needs be done for critical components where second sourcing isn’t easily done. The only supplier I can think of where second sourcing isn’t easily done is TSMC.

    This just requires TSNC to start full production about two months earlier than is commonly thought.

    Operating in this manner does not impact FINISHED GOODS INVENTORY. The cash involved would show up on Apple’s Balance Sheet, as it does now, as an Asset under prepay so.

    3
    October 16, 2021
    • Robert Paul Leitao said:
      Gregg: I don’t understand your point and I do understand accounting. It doesn’t matter how Apple chooses to assign inventory or purchased components on the balance sheet – they are both classified as assets. What does matter is Apple’s ability to secure components. Is anyone claiming the M-series chips for the MacBook Pro are in short supply? I did read through TSMC’s financials and executive statements released on Thursday. There is talk of customers desiring to gradually build inventory in 2H 2021 (page 4 of the earnings call transcript), but no indication of chip shortages on 5nm product. Are you reading something different? Wedbush also released a positive note in response to TSMC’s results. In Wedbush’s coverage, the firm noted some inventory build up with customers and possibly softening demand from PC and smartphone makers with some of the softening of demand due at this time to “component constraints and end market dynamics.” Please keep in mind Apple products have wide and complex supply chains.

      0
      October 16, 2021
      • Gregg Thurman said:
        It doesn’t matter how Apple chooses to assign inventory or purchased components on the balance sheet – they are both classified as assets.

        You are correct. Each and every earnings report Apple reports channel inventory. It is consistently reported as being 4-6 weeks sales. My comment regarding prepaid components vs finished goods inventory, was meant to appease those on WS that follow finished goods inventory for signs of channel stuffing, aka slowing sales.

        That level of finished goods inventory neatly fits my thesis that Apple stockpiles new product/components before launch

        1
        October 17, 2021
        • Robert Paul Leitao said:
          Gregg: I just posted a link to the TSMC earnings call transcript in the Apple 3.0 Slack group for reference. I’m not seeing mention of significant supply constraints on the 7nm and smaller chips. If Apple is experiencing any component supply constraints I don’t think it’s in A15 or M1-series chip supplies from TSMC.

          0
          October 17, 2021
          • David Emery said:
            Yeah, if Apple has supply constraints, they’re most likely on general-purpose/commodity components, rather than Apple-specific items. There could be production limits on Apple custom components (cameras have been mentioned), but the impact of that is likely limited (given how Apple manages that part of its supply chain.)

            2
            October 17, 2021
  7. Duane Bemister said:
    There was an article last week that indicated that Apple is now contributing to the financial support of an open source 3D Graphics tool. https://wisdomquest.com/blender.pdf. There are other Open Source projects such as the BigBlueButton conferencing solution led by Fred Dixon of BlindSide Networks out of Carlton University in Canada that could benefit from this new direction.

    0
    October 17, 2021

Leave a Reply