Wells Fargo: Apple 'largely unaffected' by today's Qualcomm ruling

Philip Elmer-DeWitt

From a note to clients by analyst Aaron Rakers that landed on my desktop Monday:


News: This morning (12/10) Qualcomm announced that it has won a preliminary injunction from a Chinese court banning the import of the following iPhone models: iPhone 6S, iPhone 6S Plus, iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8 Plus and iPhone X. The import and sales ban does not affect Apple’s newest iPhones including the XS, XS Max, and XR.

Quick thoughts: While we think that Apple could continue to face headline risk in its battle with Qualcomm, it appears that Apple will be largely unaffected by this ruling and we think it is important to consider:

  1. It appears on Apple website that all iPhones sold through the Apple Store come with iOS 12 pre-loaded. While uncertainty remains around the news this morning, we think that Apple will be largely unaffected by the ruling.
  2. According to IDC, China has accounted for an average of 18% of total iPhone shipments over the past four quarters (range: 16.3%-19.1%); December 2017 at 19.1%.
  3. For the four quarters following the launch of a new device, IDC data leaves us to estimate shipments of prior generation devices accounted for 43% and 56% of total China iPhone shipments during the iPhone 7 / Plus (2016) and iPhone 8 / X (2017) cycles, respectively. We estimate for the December quarter, prior generation models accounted for 40% and 27% of total China iPhone shipments in 2016 and 2017, respectively.
  4. We would also highlight that the Fuzhou Intermediate People’s Court was the same body behind the import ban of some Micron chips earlier this year – a ruling which we believe was politically motivated.

We continue to think there is risk to Apple from the developing U.S.-China trade war.

Maintains Market Perform rating and $210 price target.

My take: If Beijing really wanted to hurt Apple, it’s got bigger guns than the Fuzhou Intermediate People’s Court.