“Five million to 10 million units moving out of the December quarter into March due to supply chain issues is not a worry for us.”
From a note to Wedbush clients that landed on my desktop Wednesday:
Apple will be reporting its September quarter results next week on Thursday, October 28th after the bell. Despite the chip shortage noise, we believe Apple will deliver clear upside to Street numbers across the board as iPhone 13 demand was robust globally with China front and center.
The Street is looking for $84.8 billion and $1.23, with our belief that a likely $1 billion+ beat driven by the iPhone 13 launch will naturally be the focal point of investors.
The elephant in the room for Apple (and every other tech and auto player) heading into the conference call remains the chip shortage crunch and what impact this global logistics Rubik’s Cube will have on iPhone builds and shipments for holiday season. To this point, with Apple likely needing to cut iPhone units by 5 million to 10 million due to the chip shortage, December guidance (higher ASPs an offset) could be a bit mixed although this remains purely a timing issue that is well understood by the Street.
Taking a step back, 5 million to 10 million units moving out of the December quarter into the March quarter due to well understood supply chain issues is not a worry for us and ultimately speaks to a stronger demand trajectory than the Street had been anticipating with the supply chain constraints now needing to reduce builds given component shortages.
Apple remains a top tech name to own. The tech bull cycle will continue in our opinion its upward move into 2022 given the scarcity of growth names/ winners in this market looking ahead on the heels of the 4th Industrial Revolution playing out among enterprises/consumers.
Our favorite large cap tech name to play the 5G transformational cycle is Apple, with the 1-2 punch of its massive services business and iPhone product cycle translating into a $3 trillion market cap for Cupertino during 2022 in our opinion. Right now Apple has a supply constraint, with a high class problem of demand outstripping supply for the biggest product cycle Cupertino has experienced in roughly a decade with now two new launches (Mac Pro, AirPods 3) adding to these growth tailwinds.
Maintains Outperform rating and $185 price target.
My take: I believe this is the first time Ives has acknowledged that the chip shortage may affect Apple’s Q4 earnings.