Consumer Electronics

Why This Apple Analyst Is So Cautious Despite Rising iPhone 12 Visibility

Despite the coronavirus crash, Apple Inc. (NASDAQ: AAPL) has weathered the storm better than most, with its super-solid balance sheet and App Store. The iPhone 12 launch is just around the corner, and more investors are throwing their money at Apple anticipating a win. However, one analyst is taking a very cautious approach to the upcoming launch.

Nomura Instinet reiterated a Neutral rating for Apple with a $250 target price, implying a downside of 33% from the most recent closing price of $373.85.

The firm believes that U.S. telecom companies seem to be more willing to promote the iPhone 12 and the launch timelines remain steady. However, Nomura Instinet’s read on Apple’s component orders reinforces its view that the iPhone 12 will fall short in this supercycle.

In terms of the telecoms, the U.S. operators have slowly elevated their rhetoric around iPhone 12 promos over the past year. Nomura Instinet noted that the phrasing has shifted from “quite comfortable with (low) levels of promotion” to “supercycle isn’t the term, but step up in replacements likely” to “nothing moves the needle like the iPhone.” The firm considers the telecoms much more savvy about targeting promotions than they were during the iPhone 6 supercycle.

Nomura Instinet believes that there will not be a 4G option for this new generation of iPhone. Instead, it will be entirely 5G. In the report, the firm detailed:

Our work indicates Apple will retain 5G across the lineup. Our house view, including our Taiwan and Japan teams, remains that Apple will launch four iPhone 12 models, each of which will offer sub-6GHz and sub-6GHz plus mmW variants. While Apple will likely compensate for 5G’s higher BoM (lower memory costs, no earbuds/charger, etc.), we do expect ASPs to rise modestly for the iPhone 12 cycle.

The firm’s analysis suggests that Apple has prepped its supply chain for 80 million iPhone 12s in the second half of the year. Nomura Instinet’s interpretation of this is that Apple expects to ship 65 million to 70 million iPhone 12s in the second half of the year, depending on the specifics of the launch timing. Additionally, the firm had this to say about the supply chain:

Supply chain may run hot in F3Q to preserve 4- to 6-week iPhone 12 launch delay. Anne [Taiwain supply chain team] expects the iPhone 12 component ramp to begin in August, which is 4-6 weeks later than is customary. Apple may run the supply chain full tilt on the iPhone 12 in September to shave weeks from the launch delay. This would necessitate higher production of the iPhone 11/SE models in F3Q and place upward bias on our F3Q/4Q unit estimates of 31mn / 40mn. Also, June price actions in China have helped demand.

Apple stock traded up about 1% on Tuesday at $378.05, in a 52-week range of $192.58 to $378.62. The consensus price target is $345.22.