The Launch of Apple's iPhone 16 Is Imminent, and These Supply Chain Companies Could Benefit

In addition to the high attention given to Apple's stock price, the performance of Apple's supply chain has also become a focal point for the market. This is because the market widely anticipates the largest upgrade cycle in history is about to begin, and the companies behind Apple are expected to benefit from it.

Release Schedule and Supplier Activity
Apple's next iPhone, set for a September launch, is driving a surge in component stocking and assembly activities. Major suppliers like Largan and Hon Hai are ramping up efforts as assembly and mass production are scheduled to begin in July and August.

Panel Supply and Mass Production
A new United Daily News report confirms that Apple has finalized panel supply contracts with Samsung and LG for the iPhone 16 series. With OLED screens being one of the most expensive components, their mass production signals the start of stocking up on other key components like lens modules, processor chips, and radio frequency components. Hon Hai is expected to remain the main OEM for the iPhone 16 Pro series.

Major Upgrades in iPhone 16 Series
The iPhone 16 series will feature several major upgrades. The iPhone 16 Pro Max will have a 6.9-inch screen, making it Apple's largest iPhone to date. Both Pro models will employ "ultra-thin borderless display technology" (BRS) for a near-borderless screen effect.

Camera and Lens Enhancements
The iPhone 16 Pro series is rumored to include a five-fold optical zoom telephoto lens. The iPhone 16 Pro Max will feature a SONY sensor with double-layer transistor technology and a periscope telephoto lens. Additionally, it is expected to have a significantly improved 48MP ultra-wide-angle lens, compared to the 12MP lens on the iPhone 15 Pro Max.

Processor and Performance Improvements
The iPhone 16 Pro is expected to use the A18 Bionic chip, while the iPhone 16 Pro Max will feature the new generation A18 Pro chip, built using TSMC’s second-generation 3nm process, promising significant performance improvements.

Design and Functional Enhancements
The iPhone 16 Pro may introduce a physical camera button below the power button, aimed at allowing users to quickly activate photo and video functions. This button could also integrate with Vision Pro to shoot "space videos" viewable on Vision Pro.

Supply Chain and Production Timeline
TSMC is responsible for exclusively manufacturing the A18 Pro chips, while Hon Hai and Pegatron are tasked with assembly. Largan will supply high-end lens modules. Upstream components are expected to be stocked soon, with downstream assembly OEMs entering a busy period in the third quarter.

Wedbush analysts predict this event will kickstart the "biggest upgrade cycle" in Apple's history, driven by AI advancements. They expect initial iPhone 16 shipments to surpass 90 million units, exceeding earlier market projections of 80-84 million units, marking a significant year-over-year increase.

Wedbush estimates that 300 million iPhones worldwide haven't been upgraded in over four years, indicating a substantial demand surge. They project Apple could sell over 240 million iPhone units in FY25, with China playing a crucial role in this growth.

The launch of Apple Intelligence is anticipated to position Apple as a leader in the consumer AI revolution, with developers integrating AI models into Apple's vast ecosystem of 2.2 billion iOS devices. Wedbush forecasts hundreds of generative AI-driven apps will emerge, potentially adding $10 billion in high-margin annual growth to Apple's Services segment.

Morgan Stanley analyst Erik Woodring predicts that Apple's upcoming iPhone 16 launch will encounter a market more ready for upgrades than during the first 5G iPhone release. He expects Apple to outperform its usual year-end sales due to the new iPhone 16 and Apple Intelligence, which could unlock pent-up demand. Woodring estimates the upgradable iPhone base is 40% larger than before the 5G cycle, and believes AI integration with Apple Intelligence will accelerate the current 4.8-year replacement cycle. AI features in the iPhone 16 are anticipated to be a major attraction.

J.P. Morgan analyst Samik Chatterjee believes Apple’s WWDC presentation effectively demonstrated how AI features will differentiate the iPhone 16 from the iPhone 15, potentially leading to a significant acceleration in the iPhone replacement cycle. Chatterjee anticipates AI-assisted features in native apps will be available with iOS 18, highlighting Apple's progress in AI.

Chatterjee draws parallels to the 5G upgrade cycle, suggesting the iPhone 16 could trigger a similar surge. With a current replacement rate of 15% in a 1.5 billion installed base, increasing to a 20% replacement rate could imply a peak volume cycle of around 300 million units. However, he notes key challenges: the 5G cycle coincided with the pandemic's increased device demand and Apple’s market share gains in China due to Huawei restrictions.