"An absolute gut punch for Apple in its most important holiday quarter." -- Wedbush's Daniel Ives
Excerpts from the notes I've seen. More as they come in.
Wamsi Mohan, BofA: Supply issues impact iPhone Pro/Max shipments. Our checks suggest that the Zhengzhou facility is running at about 50% utilization rate and aiming to ramp to 70% in the last two weeks of Nov and back to a full rate in Dec. We estimate a 5-6mn unit disruption in supply if the situation does not deteriorate further. We also view demand as partially perishable and not likely to drive upside in the March qtr. We reiterate Neutral on risk/reward balance, where lower consumer spending, weaker near- term services trajectory and headwind from a stronger dollar, are offset by potential new products (AR/VR) and services. Neutral. Target to $154 from $160.
Erik Woodring, Morgan Stanley: An opportunity to 'buy the dip' emerges, but tracking fluid iPhone production situation remains key. While the renewal of COVID-19 restrictions at Hon Hai's (covered by Sharon Shih) primary Zhengzhou, China facility is negatively impacting iPhone 14 Pro and Pro Max production, we see this as a supply problem, not a demand problem, as iPhone 14 Pro and Pro Max channel inventory is below the target range and lead times have remained strong cycle-to-date. Said differently, we believe this situation equates to more of a deferral of iPhone demand than a destruction of demand, which does not change our OW thesis. As a result, we would be methodical buyers of the stock as it approaches 20x P/E – roughly 6.5x turns lower than its recent peak in August 2022 and in-line with its trailing 5 year average. Overweight. Target to $175 from $177.
David Vogt, UBS: Apple discloses Covid lock downs to impact 14 Pro and Pro Max assembly. The confluence of Covid disruptions and solid demand for the high-end models will lead to longer wait times for customers to receive their products. While we have highlighted this risk based on our channel checks and analysis of UBS Evidence Lab data that showed an abnormal increase in wait times in the US, China and Europe, we believe the market has not fully reflected the disruptions in F1Q23 and FY23 expectations. Although we are not trimming our ests for the December quarter, we remain below the street for both revenue and EPS as our FY23 forecast reflects the supply chain challenges and softer Product demand in FY23. Buy. $185.
Melissa Fairbanks, Raymond James: Demand remains strong, but another covid-related setback. Over the weekend, Apple issued a press release indicating supply of the highest-end devices – iPhone 14 Pro and Pro Max – was being impacted by the most recent covid lockdowns at Foxconn’s Zhengzhou, China facility. Net, while disruption in the supply of Pro/Pro Max models would have a greater impact on ASP and revenue, our checks this morning suggest lead times have only extended by about a week for each model (so far) as compared to last Friday, and assuming production returns to normal this later month, we estimate the overall impact to results to be minimal for the December quarter, particularly against an already cautious outlook. Outperform. $185.
Tim Long, Barclays: AAPL Cuts Pro Units, and Checks Indicate Weakening Sell Through. We think 82M consensus iPhone estimate and 3% AAPL revenue growth estimate for Dec-Q are now too high. We are cutting 6M Pro units for Dec-Q and shifting 3M to March-Q, assuming some lost shipments will not recover. Local contacts believe that the shortfall will be 10M units, so our model still could prove aggressive. We are also reducing Dec-Q wearables revenue moderately as we hear AAPL cut 5M AirPods Pro on weak demand. Equal Weight. $144.
Daniel Ives, Wedbush: Zero Covid Policy in China Strikes Again for Apple. After battling the macro headwinds and delivering a strong September quarter/guidance in a stark contrast to the rest of Big Tech, this latest zero Covid situation is an absolute gut punch for Apple in its most important holiday quarter. With demand remaining firm into holiday season, we would estimate this negatively impacting roughly 3% of iPhone sales this quarter based on impacted China production/supply issues. If Zhengzhou remains at lower capacity the next few weeks, this would cause clear iPhone Pro shortages into the all-important Christmas time period especially in the US. While not the news any bull wants to hear from Apple, its a supply issue and related to China's zero Covid policy which is a very frustrating situation for Apple (and its investors) yet again but not demand driven. Outperform. $200.
Amit Daryanani, Evercore: COVID Shutdowns Impact iPhone Production. It is unclear what exactly is meant by “significantly reduced capacity”, but if we assume 50% capacity for 7 days that would imply $3B in lost iPhone production or 4% of our forecasted iPhone revenue for the Dec-qtr. Net/Net: China’s Zero Covid policy continues to cause issues for manufacturing in the country, but the key thing to focus on is it is unlikely a short extension in iPhone lead times will cause anyone to leave the Apple ecosystem, so we view demand as deferred rather than lost. Any shutdowns should just lead to a longer than usual iPhone cycle and drive more revenue into the Mar-qtr. Outperform. $190.
Samik Chatterjee, J.P.Morgan: Thoughts on Implications of Apple’s Supply Announcement. Even though lead times have only expanded by an additional week as of now, it still implies that the company is going to be far from achieving supply-demand balance that it usually does every year with lead times dropping to a matter of days by the end of C4Q/F1Q. However, within the hardware portfolio, we see the demand destructions from supply pushouts the least for the iPhone, as consumers are willing to wait for delivery; and would expect the delayed shipments to push out into F2Q23 (March-end) or later quarters. Supply chain challenges have been frequent the last couple of years, and there is limited evidence that delays in shipping devices have had any impact on overall volumes for a product cycle (example: iPhone 12 or iPhone 13) over a multi-quarter period. Overweight. $200.
Martin Yang, Oppenheimer: Model Update on Reduced iPhone Capacity. On 11/06, Apple announced that COVID restrictions have impacted iPhone 14 Pro and Pro Max capacity out of its assembly facility in Zhengzhou, China. With reduced capacity, Apple expects lower Pro and Pro Max shipment. We lower our iPhone shipment assumption for F1Q23 (Dec. Q) by 3.5M units, impacting our F1Q23 EPS estimates by $0.06. We also assume that lost sales due to capacity reduction in F1Q23 will be fully recuperated by F2Q23; therefore, our FY23 annual estimates is little changed. Outperform. $190.
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