The new iPhone is “weeks late”, will Apple’s “super cycle” continue?

Apple Inc. released an excellent quarterly earnings report on Thursday (July 30th) Eastern Time. In the third fiscal quarter ending June 27, 2020, Apple achieved revenue of US$59.685 billion, an increase of 11% year-on-year, higher than the market expectation of US$52 billion; net profit was US$11.253 billion, a year-on-year increase of 12%, and the market expected US$8.8 billion. Apple's revenue in Greater China in the third fiscal quarter was US$9.329 billion, a slight increase of 2% from US$9.757 billion in the same period last year. Apple rose more than 5% after the market, and its stock price broke the US$400 mark for the first time. Apple said that the growth in performance was mainly due to the "aggressive" pricing of the year-end promotion in June and the good performance of the iPhone SE2 launched in April.

However, Apple Chief Financial Officer Luca Maestri confirmed in a conference call after the release of the financial report that the new iPhone plan will be launched "a few weeks later" than before, which means that the iPhone 12, as speculated by the outside world, may be launched in October. The day before, Qualcomm said that 5G mobile phone shipments in the third quarter of this year will fall 15% from the same period last year, partly because unnamed customers postponed the "launch of the global 5G flagship phone."

Will the late arrival of iPhone 12 affect the “super cycle”?

Wedbush Securities analyst Dan Ives previously pointed out that Apple's growth will ultimately depend on the super cycle of iPhone 12. The iPhone 6 series, which once set the highest shipment record for Apple, opened the "super cycle" of Apple's growth. But this super momentum seems to have gradually slowed down since 2018.

Before the pandemic this year, Apple reportedly hoped that the iPhone 12 would start the next super cycle for them. Apple had hoped that the iPhone 8 and iPhone X would replicate the success of the iPhone 6, but that did not happen. Market observers are generally quite optimistic about the boost that the 5G iPhone can bring to Apple, and believe that it will be Apple's most important product cycle since the release of the iPhone 6 in 2014.

But some analysts have different views. Regarding the rumor that the iPhone 12 may be postponed to October, Morgan Stanley analyst Katy Huberty once pointed out that even if the iPhone 12 is postponed to October, it will still catch up with the holiday gift-giving carnival. At the same time, Katy Huberty also pointed out that "investors will realize that Apple may not be so dependent on the iPhone super cycle to maintain growth, and the ecosystem created by Apple is so unique that it deserves its valuation to be multiplied several times."

In terms of the performance of each business in the third fiscal quarter, the net revenue of iPhone products was $26.42 billion, higher than the $21.31 billion expected by analysts and $25.99 billion in the same period last year; the revenue of wearable devices, home products, and accessories was $6.45 billion, while analysts expected $6.09 billion; the net revenue of service business was $13.16 billion, expected $13.18 billion, and $11.455 billion in the same period last year. Apple also said that in the third fiscal quarter, the number of paying users on the Apple platform reached 550 million, higher than the 515 million in the previous fiscal quarter.

As for the domestic industrial chain, the market has high expectations for Apple's first 5G iPhone. Huaxi Securities said that it is judged that the performance elasticity of domestic Apple 3C automation equipment companies will begin to appear in the second quarter and will continue into the third and fourth quarters. Domestic Apple concepts opened strong. As of press time, Huanxu Electronics hit the daily limit, and Saiteng Co., Ltd., Dongshan Precision, Suzhou Goertek, Goertek Co., Ltd. and others all rose.

Wearable business hits new high, industry chain welcomes growth momentum

It is worth noting that during the reporting period, Apple's wearable device, home and accessories business achieved revenue of $6.4 billion, up from $5.5 billion in the same period last year, achieving double-digit growth and setting a non-holiday quarter record. Maestri pointed out in the earnings conference that Apple's wearable device business (including AirPods and Apple Watch) alone is now equivalent to the size of a Fortune 140 company.

In 2019, Apple's wearable device shipments exceeded 100 million units, increasing from 48 million units in 2018 to 106.5 million units, a year-on-year increase of 121.7%.

According to the data disclosed in Apple's annual report, other businesses consisting of wearable devices, AirPods and smart home have shown a steady growth trend. Wearable devices have also become Apple's fastest growing business segment in recent years. In fiscal 2019, the revenue of this business reached US$24.5 billion (approximately RMB 170 billion), an increase of 41% over the same period last year. In fiscal 2020, the high-speed growth trend continued. In the first quarter of fiscal 2020, the revenue of wearable devices, AirPods and smart home set a record, and the single-quarter revenue exceeded the 10 billion mark for the first time, an increase of 37% to US$10.1 billion over the same period last year.

Although Apple has never disclosed sales data for wearable devices, according to a Strategy Analytics research report, Apple Watch shipped 30.7 million units worldwide in 2019, exceeding the total shipments of all Swiss watch brands of 21.1 million. If calculated based on this data, Apple Watch may generate tens of billions of dollars in annual revenue for Apple.

Finding new sources of revenue beyond the iPhone has become a focus of Apple's future strategy.

At Apple's 2019 Investor Conference on March 1 last year, when Cook talked about the iPhone, Apple Watch, AirPods and future new devices, he expressed Apple's idea of ​​continuing to upgrade the iPhone and creating new hits at the same time. At that time, Cook said that the sales prospects of the iPhone were still bright, but the core of Apple's future development was AR (augmented reality). "AR will take some time to develop, but after overcoming the difficulties, our smart life will undergo a disruptive change." Cook pointed out at the time, and said that "in the future, it will be a life without a mobile phone."

According to IDC data, global shipments of wearable devices increased by 89% year-on-year to 337 million units in 2019. The market is mainly concentrated in the hands of the top five manufacturers, namely Apple, Xiaomi, Samsung, Huawei and Fitbit, which account for 66.3% of the global market.

Benefiting from the growth of wearable devices such as Apple Watch and AirPods, as well as the thriving development of global wearable devices, the revenue and profits of related industry chain companies have maintained a steady growth trend, including Luxshare Precision, Goertek, Lens Technology, Huanxu Electronics and many other industry chain companies have achieved exponential growth in net profit in the past year. Among them, Lens Technology has achieved a stunning reversal from loss to big profit. In the first half of 2019, it still lost 156 million yuan, and after entering the third quarter, it made a net profit of 1.26 billion yuan. According to Lens Technology's 2020 semi-annual performance forecast, in the first half of 2020, the company's operating performance turned from loss to profit year-on-year, and realized a net profit attributable to shareholders of listed companies of 1.908 billion yuan to 1.923 billion yuan. The reversal of performance is mainly due to the growth in shipments of major customers such as Apple, and high-quality growth has been achieved in various business segments such as smartphones, smart wearable devices, and smart homes.

Industry analysts believe that the second half of the year will be a critical period of explosive growth for wearable devices such as watches and bracelets. Currently, manufacturers such as Huawei, Xiaomi, and OPPO have already elevated their "IoT+mobile phone" strategy to a high level, with a steady stream of product launches such as bracelets and TWS headphones.

Wang Pingyang, industry strategy analyst at Soochow Securities, pointed out that smart watches have great application advantages in areas such as health monitoring, and their application scenarios continue to expand. The market space is vast, and the high cost-performance ratio drives the continued penetration of smart watch products. As the market demand for smart watches continues to increase, related industry chain targets are expected to benefit fully.

As for the wearable business represented by Apple Watch and AirPods, Cook had already set a clear product development roadmap in March last year: "In the future, Apple Watch smartwatch products will be invested with more health functions. It will be combined with AirPods to create a wonderful and dreamy combination, and will develop in the long run."