"The stickiness of the iPhone upgrade cycle is still being underestimated by investors in our opinion."
From a note to Wedbush clients that landed on my desktop Tuesday:
All Focus on Demand Environment for Apple With iPhone 14 Around the Corner: Apple will be reporting its earnings next Thursday, July 28th after the bell. Headline numbers look hittable for Cupertino despite the headwinds seen in the quarter. The albatross for the June quarter have naturally been the Covid lockdowns in China which will negatively impact revenue by between $4 billion and $8 billion as a headwind according to Cook & Co.'s guidance.
As of now we believe iPhone demand is holding up slightly better than expected (despite the various supply issues that have plagued Apple and the rest of the tech sector). That said, the Street is well aware of weakness this quarter and we believe ultimately is looking past June numbers to the September and December quarters with all eyes on the iPhone 14 production/demand cycle for the Fall staying on track. Apple is continuing to focus on a robust product pipeline and services ramp into 2023 including what we believe will be the highly anticipated AR/VR headset release.
iPhone demand holding up well despite the fears...
Installed base the key to Apple's success to navigate this storm. With an unparalleled installed base of 1 billion iPhones worldwide and 1.8 billion iOS devices for Cupertino this continues to remain Apple's unique advantage over other technology stalwarts. The stickiness of the iPhone upgrade cycle is still being underestimated by investors in our opinion as we estimate that roughly 240 million of Apple's 1 billion iPhones have not been upgraded to a new smartphone in roughly 3.5 years. This importantly speaks to the Apple growth path over the next 12 to 18 months as iPhone 14 is set to be unveiled in the September timeframe.
While the nervous market backdrop is creating a fearful environment for tech stocks, we believe Apple's growth story remains well intact despite the shaky macro. Apple remains our favorite tech name.
Maintains Outperform rating and $200 price target.
My take: Ives has been singing the hundreds of millions of ready-to-be-upgraded song every quarter for several years now. Whether it's still being underestimated by investors is an open question.