iPhone monster demand cannot be secular – brace for a 12S downcycle. Downgrade to sell, $90 TP.
Most affluent consumers did not see their earnings power much affected by the pandemic, but they saw their spending opportunities shrink. High-end consumer electronics benefited as a result. The iPhone is the best illustration of this, driving close to record shipments in FY21, implying the iPhone 12 is the second best-ever received iPhone, after the iPhone 6.The key question is how things shape up for next year, as the current super-cycle has brought forward demand, the next iPhone line up is likely a “12S” type with limited innovation, and consumers spend less on consumer electronics as the economy re-opens.
In the piece we publish today, we leverage our unique modeling of iPhone cycles to determine what a weaker cycle would imply in terms of shipments, how this compares to what consensus forecasts, and how the stock could react if our fears reveal themselves justified.
We see material downside risk – shipments in the 180-200m range vs. consensus at 234m, and downgrade the stock to sell, with a $90 TP (28% downside).
Apple designs, manufactures and markets smartphones, personal computers, tablets, wearables and accessories, and sells a variety of related services. The company's products include: iPhone; Mac; iPad; and wearables, home and accessories, which includes AirPods?, Apple TV?, Apple Watch?, Beats? products, HomePod?, iPod touch? and other Apple-branded and third-party accessories. The company's services include: digital content stores and streaming services; AppleCare, which includes AppleCare + (AC+) and the AppleCare Protection Plan; iCloud, which is the company's cloud service; licensing; and other services, which include Apple Arcade?, Apple Card?, Apple News+, and Apple Pay, a cashless payment service.
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