News 20 April 2017

For Women Only: This Dual Apple Strategy Will Get You That Birkin

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  • Women. You want that Birkin handbag so much. This dual Apple strategy will get you that Birkin you so desire. Apple will be unleashing the new iPhone 8 10th Anniversary model in the fall of 2017, including upgraded versions of the current two iPhone models and a new top-of-the-line handset with an overhauled look


  • Apple is testing a new type of screen, curved glass and stainless steel materials, and more advanced cameras


  • For the premium model, Apple is testing a screen that covers almost the entire front of the device, according to people familiar with the matter. That results in a display slightly larger than that of the iPhone 7Plus but an overall size closer to the iPhone 7


  • Apple is also aiming to reduce the overall size of the handset by integrating the home button into the screen itself via software in a similar manner to Samsung’s S8


  • NOTE: The iPhone is Apple’s most important product, representing about two-thirds of sales. It also leads customers to buy other Apple devices like the iPad and Apple Watch, and serves as a home for lucrative services like the App Store


  • The overhauled iPhone will use an organic light-emitting diode display that more accurately shows colors, while the other two phones will continue to use liquid crystal display technology and come in the same 4.7-inch and 5.5-inch screen sizes as last year’s iPhone 7 and iPhone 7 Plus


  • For its redesigned phone, Apple has tested multiple prototypes with manufacturing partners in Asia, including some versions that use curved glass and stainless steel


  • One of the latest prototype designs includes symmetrical, slightly curved glass on the front and the back. The curves are similar in shape to those on the front of the iPhone 7. The new OLED screen itself is flat, while the cover glass curves into a steel frame. The design is similar conceptually to the iPhone 4 from 2010. An earlier prototype design had a thinner steel band, leaving more noticeable curved glass on the sides


  • Apple has also experimented with integrating the iPhone’s fingerprint scanner into the screen of the OLED version, which would be technically challenging. It’s currently unclear if that feature will make it into the final product. Samsung also tried this approach for the S8, but ended up installing a more standard fingerprint reader on the back of its phone due to the challenges


  • Significant camera changes are also in testing for Apple’s overhauled iPhone. For the back of the phone, Apple is testing versions of the phone with the dual-camera system positioned vertically, instead of horizontally like on the iPhone 7 Plus, which could result in improved photos, according to people familiar with the matter. Some prototypes in testing continue to include the slight camera bump found on current iPhones, rather than having them flush with the back surface


  • For the front-camera, Apple is testing dual-lenses. The current iPhone 7 and 7 Plus have single front cameras. As it has done in the past, Apple is using camera components from Sony Corp. Apple has explored adding augmented realty based features and depth-of-field enhancements to its iPhone camera system, Bloomberg News reported earlier this year. Company engineers in the past have also experimented with integrating cameras into screens


  • All the new iPhones will run iOS 11, a mobile operating system that will include a refreshed user-interface and will be announced in June at the company’s annual conference for developers


  • Apple has been testing using faster processors based on a smaller 10-nanometer production process for all three new models. The smaller processors are more efficient, allowing Apple to retain its battery life standards while adding more advanced features


  • Apple’s Services Business Is Worth $52 Billion By 2020: In the latest in the debate over Apple‘s services business, Credit Suisse analyst Kulbinder Garcha has now reiterated his Outperform rating on the shares, and raised his price target to $170 from $160, after doing what he calls a “deep dive” on the business and concluding the Street is underestimating both the profitability and the growth potential of services. The big picture is that with much higher profit margin, services can boost Apple’s overall corporate gross profit margin: We believe that Services enjoys a GM of ~70% and already its growth has absorbed iPhone GM pressure, currency fluctuations and rising commodity prices. Given its continued growth, we believe Services could actually drive GM above 40% long term ceteris paribus. This could present meaningful upside to medium term estimates. We believe that GM can remain about 38% over the medium term


  • Glossary: GM= gross margin: Gross margin is the Company’s total sales revenue minus its cost of goods sold


  • With a current base of 650 million or so active users, and 1.1 billion active devices, Garcha thinks the company can increase its installed base to 1.5 billion devices in use by 2020, and charge them for more stuff as it commands “rent” from a loyal and affluent base that on average owns more than one Apple device


  • Credit Suisse: We ran two proprietary surveys, one for Emerging Markets, and one within the U.S. Of the almost 17,000 total respondents (over 15,000 in Emerging Markets and over 1,700 in the U.S.). According to our surveys, the average Apple consumer in EM owns 1.7 Apple devices and the average Apple consumer in the U.S. owns 1.9 Apple devices. After a strong year in which the installed base of active devices (engaged in Apple services in the past 90 days) has grown over 10% yoy, from 1bn in 2015 to ~1.1bn in 2016, we still see potential for further growth in the installed base. We see active devices growing from over 1bn devices today to ~1.5bn by 2020, driven primarily by further growth in the iPhone installed base


  • And he thinks each user can, on average, be induced to spend more: “We see spend per user to accelerate from ~$68 in 2015 to ~$135 by 2020, as the uptake of Services offerings such as Apple Pay, Apple Music and iCloud take hold. In particular, stabilization in downloads revenues helps the acceleration.”


  • Despite all that, if Apple is to boost its services revenue to $52 billion in five years’ time, as chief executive Tim Cook promised in January, the company may have to explore a content acquisition, as many have said in recent weeks


  • With Apple’s “Apple TV” having a competitive “gap” with other video platforms, buying a company is one of the ways Apple might catch up: We do believe that competitively versus other platforms, Apple’s TV and Video strategy seem to be the one area where the company has a strategic gap and is clearly a source of opportunity given the nature of its installed base. Here we see four options. 1) No change to the current model – an Electronic Sell-Through (EST) platform. However this is a small TAM. 2) Become a “virtual MSO” by aggregating broadcast and cable networks. However, clearing sports rights in local markets adds complexity. 3) Invest directly or create exclusive content by contracting with talent /sports rights. However, creating exclusive content is not easy. 4) Acquire


  • RBC Capital/Amit Daryanani: RBC Capital’s Amit Daryanani has reiterated an Outperform rating on the shares, and raised his price target to $155 from $140, after looking into the company’s services business and concluding that it could provide Apple with several “tailwinds:” “We think there is potential for upside to AAPL’s current valuation if the company were to continue to increase its mix of higher margin, less cyclical Services revenue over time. Notably, internet services/software companies trade in the 20-30x FTM PE range; given AAPL’s Services mix, we think there is potential for AAPL’s multiple to expand toward this range longer term. Currently, AAPL is trading toward the lower end of its “Services Peer Group” range. The median multiple of this peer group is ~26x FY17E EPS. While we aren’t claiming that AAPL stock should trade at the group’s median multiple due to growth/margin profiles of the peer group companies, we think it is fair to compare AAPL’s multiple to these companies especially as AAPL’s Services mix increases,”


  • Glossary: EPS: Earnings Per Share: Earnings per share is the portion of a Company’s profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a Company’s profitability


  • Noting the company’s goal to double its services business in four years, which would imply $48 billion to $50 billion in annual revenue, Daryanani points out it’s growing faster than the rest now, becoming 11% of revenue last fiscal year (ended in September), up from 9% the prior year, and the biggest chunk behind the iPhone, which is 63% of revenue


  • “Simplistically, we estimate AAPL services growth of 17% CAGR over the last 4 years reflects largely growth of the install base as we estimate services growth actually tracked below install base growth historically,” writes Daryanani. “Though FY16 marked the first year where we saw services growth (and implicitly ARPU grow faster) vs. underlying install base growth.” He sees it rising by 18% per annum, compounded, through fiscal 2021


  • Glossary: CAGR: Compund Annual Growth Rate  ARPU: Average Revenue Per User


  • Apple Pay Is Heading Towards $1 Trillion In Transactions: Among his observations is that App Store can be expected to dominate, iTunes will slow as downloads/purchases give way to streaming, and Apple Pay is heading toward $1 trillion in transactions. As contactless payments grow from a very small base in the US and as Apple Pay penetration increases internationally, we estimate Apple Pay’s transaction volumes could grow exponentially to ~$1 trillion by 2020. We note that at this level, Apple Pay would still constitute less than 10% of global transaction volume of over $11 trillion


  • Apple Msy Hike Its Dividend By 10%: Analyst Vik Parmar of research firm Markit thinks Apple will increase its dividend by 10% to 63 cents a share, up from 57 cents. That would keep its payout in line with the 25% average level of the past four years. Parmar is expecting a solid report to back the dividend hike: Analyst consensus data shows increases for FY’17 revenue, EPS, and operating cash flow of 6%, 8%, and 2%, respectively. Brokers estimate iPhone, Mac, and software and service sales to grow by 7%, 7%, and 19%, respectively, but expect iPad sales to decrease by 20%. In addition to a positive forecast, the company has minimal debt, about $17bn maturing through 2019, expected capital expenditures averaging $14.5bn annually for the next three years, and free cash flow expected to be $67bn, $73bn, and $73bn for FY’17, FY’18, and FY’19, respectively. Given the current number of shares outstanding, the forecasted dividend will cost the company approximately $13bn per year. Based on the expected cash flow levels, the forecasted dividend is affordable for the company. NOTE: If the share price stayed at the current level, the dividend would increase to 1.8% from 1.6%


  • Glossary: Dividend: A Dividend is the distribution of a portion of a Company’s earnings


  • Largan Precision is the dominant supplier of Apple’s camera lenses, with a good 65% market share. In addition to the new glass body with the OLED cover, the premium model of the iPhone 8 will also have two front cameras, the second being the iris scanner (Infrared Camera). Both the OLED and 5.5’’ models will also 2 camera modules on the back of the devices: a wide-angle CCM (compact cam module) and a telephoto CCM. Both CCM will also be equipped with OIS (optical image stabilization) VCM to enhance the zoom quality


  • Daiwa Securities sees Largan Precision reporting double digit growth in the second quarter. Largan will benefit from Apple’s launch of the  iPhone 8, while it may win orders from Samsung in 2018. Here’s why Daiwa likes the stock and sees about 20% upside: We have a Buy (1) rating on Largan with a target price of TWD5,600, on a target PER of 20x, near the high point of the stock’s past-5-year range of 8-24x, applied to our 2017E EPS on the solid earnings outlook. If there is any share-price weakness due to the near term revenue volatility on the light season, we would view it as an opportunity to accumulate. Largan remains one of our top picks in the Greater China smartphone space. The key risk to our call: weaker-than-expected dual-cam adoption




  • 1) We are advising to Buy Apple shares between $139 and $143.00. Those who can afford it should buy more IF it falls below the $139.00 level (Current Price: $141.20). Target: $155.00. Potential profit per share: 9.70 percent. NOTE: In U.S. markets, minimum investment is 100 shares


  • NOTE: The market sees Apple shares climbing to as high as $180 per share. Our $155 estimate is conservative


  • 2) We are advising to Buy Largan Precision shares between NT$4,700 and NT$4,800.  Those who can afford it should buy more IF Largan Precision falls below NT$4,700 per share. Target: NT$5,200. Potential profit per share: 10 percent per share. NOTE: In Taiwan, the minimum investment is 1,000 shares


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