Evercore's Amit Daryanani: Apple could ship >35 million iPhone SE3's in Year 1

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

apple, daryanani, 35M, iPhone SEALL YOU NEED TO KNOW:  We believe the launch should be a notable tailwind for Apple, which we think could ship >35M units in the phone’s first year. At a blended ASP of ~$450 or modestly higher given a higher base price, shipments at that volume could generate an additional ~$15-20B in annual revenues (approx. ~4-5% of total sales). Assuming standard product operating margins, it could contribute ~25-30c to EPS (~4-5% of total EPS)...

[W]e think the third generation of SE could follow a similar growth pattern to what the second generation saw vs. the first. In the first year of Apple shipping the first iPhone SE, it sold ~25M units. Apple shipped ~29M units in the first year of the second generation SE, a ~16% increase.

And recall, Apple reported Jun-20 iPhone revenues materially ahead of management and street expectations ($26B vs. expectations for $22B) driven in part by the strong launch of the second iPhone SE.

Net/net: In light of both historical patterns around the previous generations of the iPhone SE and our assessment of current demand for a more affordable iPhone, we think Apple could see substantial revenue contributions from the new SE, potentially reaching $15B or higher.

Maintains Outperform rating and $210 target. 

My take: Daniel Ives, for what it's worth, put his chip on the 30M square. We'll never know for sure.

14 Comments

  1. Robert Paul Leitao said:
    Both Verizon and AT&T are offering the new 5G iPhone SE for as little as $12 per month under contract. Generous carrier subsidies will be a definite tailwind for the iPhone SE and, in general, for the entire iPhone line through at least the iPhone 14 series handsets to be released this fall. Additionally, attractive trade-in values from Apple, the carriers and other 3rd-party merchants will gradually reduce the length of time original owners, on average, maintain possession of their iPhones thus boosting upgrade frequency rates among new iPhone buyers.

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    March 13, 2022
    • Jerry Doyle said:
      @Robert Paul Leitao: “…. Generous carrier subsidies will be a definite tailwind for the iPhone SE and, in general, for the entire iPhone line through at least the iPhone 14 series handsets to be released this fall. Additionally, attractive trade-in values from Apple, the carriers and other 3rd-party merchants will gradually reduce the length of time original owners, on average, maintain possession of their iPhones thus boosting upgrade frequency rates among new iPhone buyers.”

      Remember, we discussed this about a year ago with the launch of the iPhone 12, relative to carrier subsidies. We came to a conclusion and even a consensus, I believe, that carrier subsidies would continue into future years. Carriers noticed in years past when they terminated subsidies that they gain churn with many of their consumers moving to other carriers in search of more competitive rates. We came to a conclusion with the release of the iPhone 12 that carriers were returning to perpetual subsidies going forward so as to “lock-in” consumers into carriers’ plans. This approach is as if carriers are developing their own sort of ecosystem of consumer preferred network plans. Keep the subsidies flowing with release of new phone line-up and keep the customers locked-into their existing plans. Make the monthly payments so attractive and customer options so easy that they never leave. In summary, we have returned to the perpetual phone subsidy plans, at least we all are hoping so. If we are correct, then we will continue to see higher numbers of new phones sold than in past years when subsidies ended and consumers held on to their phones longer. The result: higher revenues and profits for Apple.

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      March 13, 2022
      • Robert Paul Leitao said:
        Jerry: I’m following AT&T’s divestment of the Warner Media assets and the strategic plan outlined publicly by its CEO. The costs of the 5G infrastructure rollout are very high on an industry-wide basis, including the costs of spectrum acquisition and deployment. While I’m confident subsidies will remain generous through the first three years of 5G iPhone models (through the iPhone 14 series), I’m reserving judgement as we move forward. There’s a definite benefit to getting as many customers on 5G as possible yet the carriers will need to raise prices on service packages over time. The current generous subsidies are on post-paid, 36 month unlimited contracts and those plans are not inexpensive for consumers. This isn’t to say subsidies won’t continue, I’m just not so sure subsides after next model year will be quite as attractive on a total cost basis for consumers. We’ll see. In the meantime, it’s all good. By the way, AT&T is offering the iPhone 12 at $10.14 per month, the new 5G iPhone SE at $11.95 per month and the iPhone 13 at $22.23 per month on 36-month unlimited contracts for “Well qualified customers.” In other words, the quoted prices won’t be available to everyone.

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        March 13, 2022
  2. Robert Paul Leitao said:
    Apple is (for now!) moving the story or narrative to one of silicon. Hardware is the company’s traditional strength and it’s well within the “comfort zone” of the market at a challenging time for equites. YTD Apple has traded pretty much in synch with the S&P 500 of which it is a highly weighted component. Over the same span the shares have slightly underperform the DJIA while outperforming the tech-heavy Nasdaq Composite. I won’t call the performance of the broad market over the short-term. However, in my view, Apple is well within an attractive buy zone for long-term price appreciation. Last week’s special event has been well received by the market and there’s even more exciting hardware news ahead this calendar year. Apple trades on forward growth expectations. I expect Apple to deliver above consensus revenue growth this fiscal year. iPad supply challenges appear to have been resolved and the new 5G iPhone SE is a winner out of the proverbial gate.

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    March 13, 2022
  3. Fred Stein said:
    First, let’s debunk this SE price increase / expensive nonsense.
    1) 7.5% increase since the SE debuted 5 years ago or so. Tiny compared just about anything these days.
    2) It’s the cheapest smartphone in its class. No Android beats the chips inside.
    3) Carrier deals (thanks RPL) and trade-ins reduce the impact further.

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    March 13, 2022
    • Robert Paul Leitao said:
      Fred: Similar to the way Federal agencies determine price inflation on goods, the increased performance of the iPhone SE and its more advanced components actually diminish the nominal cost relative to the pricing of the previous model. The two major domestic carriers I referenced are offering the new 5G iPhone SE at about $12 per month. Purchased on a multi-year contract with roughly 8% annual inflation, the post-inflation cost is actually reduced with each future monthly payment. In other words, the “real cost” of the new 5G iPhone SE might actually be lower over time than the previous model on an inflation-adjusted basis considering the more advanced and higher-performing components.

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      March 13, 2022
  4. Fred Stein said:
    Second, and more important, Apple continues to take share in SmartPhones especially with this entry level SE.

    And in Mac v. PC as well.

    And over time, M-series will eat into render farms, high-end engineering applications, AI, and life science research applications.

    Apple silicon drives all this. Apple silicon allow Apples to meet or beat on price and defeat (the competition) on performance and quality.

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    March 13, 2022
    • David Emery said:
      Well, I wonder if Apple has any interest in ‘server farm’ kinds of systems. The performance/watt would have great appeal I think, even without considering software that is specifically tuned to the M series hardware.

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      March 14, 2022
  5. Robert Paul Leitao said:
    Fred: The new 5G iPhone SE packs a powerful performance punch. An A15 chip in a phone available from Apple for $18 per month or through a carrier on contract for $12 a month is a remarkable value proposition. Yes. It will gain share for Apple, especially among consumers in the market for an attractive and inexpensive 5G handset.

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    March 13, 2022
    • Jerry Doyle said:
      @Robert Paul Leitao: “…. The new 5G iPhone SE packs a powerful performance punch. An A15 chip in a phone available from Apple for $18 per month or through a carrier on contract for $12 a month is a remarkable value proposition.”

      We may be neglecting or forgetting that one purpose of the SE is to target consumers in developing nations such as India. India is a vast fertile ground for Apple. So, any price increase is to be scrutinized carefully. Correct me if I am mistaken, but to my knowledge I do not believe carriers in India and Developing countries offer the flexible, easy monthly payment plans of which you speak and will drive unit sales of the SE in the USA.

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      March 13, 2022
      • Robert Paul Leitao said:
        Jerry: India is a unique case. In my understanding, there are some restrictions on the ability to resell pre-owned iPhones in the India market. The government didn’t want the country to be a dumping ground for non-new handsets.There’s also local content requirements as Apple creates a manufacturing presence in the country. From my reading, Apple has a very small percentage of the smartphone market in India. I do expect that to grow over time. According to data from Statistica, Apple sold 5.4 million new iPhones in India in 2021, up from 3.2 million units in 2020. The latest numbers I’ve seen suggest there were about 12 million iPhones in use in India in early 2020. The market for iPhones in India is growing at a fast pace, but starting from a very small base. From my reading, the 5G rollout in India is really just getting started so the appeal of the 5G iPhone SE specifically and other 5G iPhone handsets will build over time.

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        March 13, 2022
      • Robert Paul Leitao said:
        Jerry: IIRC, within the past few weeks you suggested in your area of the country 5G may not be a top selling point for new iPhones. In your conversations with people as you go about “the business of life,” what do you believe is driving the appeal of new iPhones at this time among consumers in your area? Camera, build quality, eco-system, etc.?

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        March 13, 2022
  6. Jerry Doyle said:
    @Robert Paul Leitao: “…. In your conversations with people as you go about “the business of life,” what do you believe is driving the appeal of new iPhones at this time among consumers in your area? Camera, build quality, eco-system, etc.?”

    Answer: The Apple brand & its premium quality build.

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    March 14, 2022
    • Robert Paul Leitao said:
      Jerry: Thank you for the thoughtful conversation this evening. Your reference to developing markets as target markets for the new 5G iPhone SE led me to search for information on where most pre-owned smartphones are resold. I found a report from Mordor Intelligence suggesting the Asia Pacific region will be the top region for resales of pre-owned smartphones in the period from 2022 – 2027. My thinking at this time is developing markets will be good markets for both the new iPhone SE as well as pre-owned iPhones. Of course even with just a little digging for information I’m thinking up more questions than I’m finding answers. I just want to say thank you for sparking this exercise.

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      March 14, 2022

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