Daniel Ives: An improving supply chain is a positive for Apple

"Thus far the dreaded cut in enterprise spending is more bark than bite."

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

This is the most complex Rubik's Cube macro for investors to navigate in many decades with the combination of skyrocketing inflation coming out of a once in a 100 year pandemic, Fed chasing the curve in hawk mode, horrific Ukraine war, and zero Covid issues in China further crimping a brutal Asia supply chain logjam. As such, tech stocks have seen a brutal year so far with red screens on a daily basis as the Street anticipates the "R word" and a softening of earnings/growth heading into 2023.

However, over the last few weeks in a surprise to the Street fundamentals on enterprise tech are holding up much better than expected with earnings reports from bellwethers Nvidia, Palo Alto, Zscaler showing demand on pockets of tech are still strong with no major cracks in the armor yet.

Supply chain improving = positive for Apple, chips. Over the last week including this weekend we are seeing from our checks a clear improvement in the supply chain in Asia for names like Apple and other chip players which is a much needed positive heading into 2H. While spots around zero Covid are popping up in China, we are seeing a strong production trajectory heading into June for stalwart names such as Apple (good for iPhone 14 ramp) and Tesla which are key barometers for the overall market on this painful hot button supply chain issue which has been a black cloud over the tech/automotive sector the last 6 months.

Cloud and cyber security holding up well despite rampant fears. Our enterprise spending checks in the US and Europe on cloud, cyber security, and big data areas remain relatively firm with the Street already factoring in negative 2023 whisper numbers ~10% below current consensus expectations even though thus far the dreaded cut in enterprise spending is more bark than bite...

Bifurcated tech tape ahead. We continue to view this bifurcated tech tape will be driven higher by software, semis, cyber security, and product-driven names (Apple) as part of this digital transformation, while the WFH poster children in the e-commerce world will continue to see multiples compress as results soften off pandemic highs as seen by the recent Snap debacle. Our top picks in the tech sector remain Microsoft and Apple with our favorite sub-sector the cyber security space with our top picks Palo Alto, Zscaler, Tenable, Fortinet, and CyberArk. Our unwavering view is that the shift to the cloud is only ~40% complete with a massive digital growth wave ahead that will benefit MSFT, Amazon (AWS), Google (GCP), Salesforce, and Oracle.

My take: Who are you going to believe, DigiTimes or Dan Ives?

 

5 Comments

  1. Michael Goldfeder said:
    While the bad news was being promulgated by the usual suspects who perpetually see the glass as half empty, reality transcends once again. Just as Mark Twain, or Samuel Clemmons said a long time ago: “The reports of my death are greatly exaggerated.” (Or words to that effect)

    Apple has been able to navigate these past several years as the bell cow of the entire market, and done so in a manner that will one day finally be recognized by Wall Street for what it truly was; An incredible example of corporate leadership by perhaps the finest CEO of any era in TIm Cook.

    Perhaps the best endorsement of the way TIm Cook operates Apple was best said by Warren Buffet who wanted to buy the entire company. As great as Steve Jobs was, and he was a once in a lifetime innovator and creative genius, TIm Cook has navigated uncharted waters including a once in a century pandemic flawlessly IMO as compared to anyone else. Warren didn’t want to buy Apple when Steve was in charge. Which is a compliment of Biblical proportions to TIm Cook and the team he has put into place since becoming the CEO.

    A bumpy ride has been much smoother knowing that these negative troll stories have been utilized by Apple to benefit the long term shareholders by confronting them with bazillions in buybacks. Those buybacks have been taking hold just as Gene Munster stated in the very first Apple 3.0 zoom call when he said: TIm Cook is slowly turning the screws on Apple from underneath as it rises slowly but constantly in an upward trajectory.

    No later than the end of January, 2023 this stock blows through $200 like a hot knife through a soft stick of butter.

    4
    May 31, 2022
    • Fred Stein said:
      Michael, upvoted. Could not agree more.

      Very few analysts understand Tim or Apple. Over time, books will written about, and business school courses will elucidate Tim’s vision and strength of character.

      1
      May 31, 2022
  2. Robert Paul Leitao said:
    Yes. It’s a bifurcated tech tape. For enterprises facing fast-rising labor costs, productivity gains through technology adoption and technology enhancements are among the few counter-inflationary forces that can be deployed fairly quickly. Apple silicon-based iMacs, MacBook Pros and Mac Studios are in high demand. Through the March quarter iPhone revenue was up about 7% year-over-year following outsized revenue gains for the line last fiscal year.

    1
    May 31, 2022
  3. Easing of the COVID-19 lockdowns in China may be seen as a positive development for Apple & other consumer products makers. It’s those components suppliers that need to get going again. There’s still a month left in this quarter giving Taiwan Semi the opportunity to ramp chip output back up and Apple a chance to catch up on MacBook Pro shipments.

    2
    May 31, 2022

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