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IPhone Sales to Grow 10% Next Fiscal Year, D.A. Davidson Analyst Says

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Bloomberg Sep 9 20:44 · 21.8k Views

Gil Luria, D.A. Davidson managing director and senior software analyst, reacts to Apple's new iPhone 16 on "Bloomberg The Close."

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Transcript

  • 00:00 Joining us right now to help kick us off to the close, the Skill Lauria, Senior software Analyst at DA Davidson.
  • 00:05 And we've seen the phones.
  • 00:07 We knew they were coming.
  • 00:08 We knew they weren't going to include the AI features immediately.
  • 00:11 Do you think that's going to hamstring
  • 00:13 the potential upgrade cycle on the hardware devices?
  • 00:17 I think it spreads the upgrade cycle over more of a 12 to 18 month period where
  • 00:23 maybe coming out of worldwide Developer Conference when we saw these features, we thought they'd all be in the iPhone 16 at launch.
  • 00:31 We thought iPhone 16 itself right away over the the holidays, the 4th calendar quarter
  • 00:36 would provide the big upgrade cycle.
  • 00:38 It's becoming increasingly clear that they're going to layer in the Apple intelligence features, which means an upgrade cycle that would spread over 12 to 18 months.
  • 00:48 That doesn't change the fact that this is the biggest upgrade cycle since iPhone 12.
  • 00:53 And stock wise, let's not forget the last time the stock worked was after iPhone 12.
  • 00:59 So the we've gotten 15% out performance out of the stock since Worldwide Developer Conference.
  • 01:05 Taking a little bit of a step back today
  • 01:07 as we wrap our heads around how long it's going to take to get this upgrade cycle going.
  • 01:12 But just to kind of play devil's advocate here, I mean, this is a big upgrade cycle.
  • 01:15 But part of that is because
  • 01:17 that cycle got longer.
  • 01:18 A lot of people looked at their phones.
  • 01:19 They looked at the iPhone 15 or 14 or 13 and said, I don't really need to upgrade.
  • 01:23 I can stick with my 12 or 11 or whatever.
  • 01:25 Or if you're in the case of, you know, my parents, you know, like the iPhone, you know, two.
  • 01:29 Yeah, at least they have one, Gil.
  • 01:31 But, I mean, it gets to this idea here that
  • 01:33 what's sort of the sense of urgency that
  • 01:35 I guess used to be sort of
  • 01:37 omnipresent around these Apple product launches events.
  • 01:39 Have you lost that?
  • 01:42 We'll get the sense of urgency as these features come out.
  • 01:46 So
  • 01:47 first of all, the the one push camera, the one press camera will be a relatively innovative feature in the context of the last four years,
  • 01:55 But it really is the Apple intelligence features,
  • 01:58 the the summarization, the prioritization, the organizing memories,
  • 02:04 the allowing Siri to take action.
  • 02:06 Those are new things that as they start working into our regular workflows,
  • 02:12 people will notice them
  • 02:14 and have that FOMO when they see their
  • 02:18 their friends and family
  • 02:19 using these features to do things that were previously not possible.
  • 02:24 This is at one of the nice things about what Apple does
  • 02:28 is it takes technology that's revolutionary and it incorporates it into what we already do.
  • 02:33 Some of these features functionality already available around tools like CHA GPT,
  • 02:38 but you have to take them outside
  • 02:40 of what you're doing to get the benefit.
  • 02:43 If the
  • 02:44 automatic writing, the image generation, the summarization, the prioritization happens within your experience,
  • 02:50 you'll notice it, you'll be delighted.
  • 02:52 And again, you'll start
  • 02:53 proliferating those thoughts and and excitement to your friends and family, which is what gets the upgrade going.
  • 03:00 OK, Gil.
  • 03:00 So how do you calculate though
  • 03:03 a spread out super cycle
  • 03:05 into valuation?
  • 03:08 So it's not spread out in into more than 12 or 18 months, Meaning
  • 03:12 our forecast is for iPhone to grow 10%
  • 03:15 this the next fiscal year.
  • 03:17 That's still the forecast whether it's a little later in the year, a little earlier in the year that would be the biggest upgrade cycle since iPhone 12
  • 03:26 and expectations are for a much smaller for maybe a single digit, maybe even mid single digit growth.
  • 03:31 So
  • 03:31 we think that in the the next fiscal year there will be 10% growth in iPhone,
  • 03:36 which let's not forget
  • 03:37 is half of
  • 03:38 Apple sales,
  • 03:39 more than that in profits
  • 03:41 and pulls the other categories.
  • 03:43 It pulls wearables, it pulls services.
  • 03:46 So that's the, the acceleration Apple needs to its growth and, and, and profitability
  • 03:51 is even if it takes a full year to do those upgrades as opposed to
  • 03:55 being more concentrated on the front end.
  • 03:58 And
  • 03:58 then how does then China play into it?
  • 04:00 I mean, there's so many issues there.
  • 04:03 Are these kind of upgrades in the a potential enough to get Chinese consumers in to buy or can this be this 10% growth in sales without a strong China?
  • 04:13 China's
  • 04:13 is going to continue to be a wild card and
  • 04:16 and in China, this functionality is more table stakes.
  • 04:19 The the
  • 04:19 native competitors there are going to introduce similar functionality
  • 04:23 and there's less of
  • 04:24 a of a brand pull
  • 04:26 in China for
  • 04:28 Apple than there is in other parts of the world.
  • 04:30 So China will continue to be
  • 04:32 their toughest market, their most challenging market.
  • 04:35 They have to make up for it in other markets,
  • 04:38 specifically maybe in India.