Cowen Positive on Apple (AAPL) Post-iPhone Event; Sees AirPods as Key Accessory for Co.

September 8, 2016 6:26 AM EDT
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Cowen and Company affirms Apple (Nasdaq: AAPL) at Outperform with a price target of $125 following Wednesday's iPhone event.

Analyst Tim Arucir noted the following

  • iPhone 7/7+ specs themselves are exactly as we expected as is pricing (albeit at $769, 7+ is $20 more than we expected) and storage configurations. There was nothing really unexpected, but we continue to feel the bias for iPhone 7 is still more to the upside given the rapidly aging installed basethe next few Qs.
  • The elimination of the headphone jack and introduction of wireless headphones (AirPods) was also expected (although it surprisingly didn't make the phone any thinner), but these are not your run-of-the-mill wireless earbuds; most users still may be happy w/the standard earbuds, but the $159 price point is high enough that even ~15-20% attach rate (~15-20MM units by CYE16) is ~$2-2.5B incremental revenue - enough to move the needle more than any other accessory in the company's history and help to fill what today appears to be a ~$3-5B shortfall b/w iPhone builds and current Street revenue for FQ1:17 (Dec). The new 3D Touch home button further enables water resistance and offers configurable degrees of "force" that we thought was pretty cool in our demo. As usual, the camera is much better but now finally really approaches professional SLR quality - especially in the case of the iPhone 7+ w/zoom (2x optical, up to 10x with software) and software enabled depth-of-field effect. Lastly, dual stereo speakers provide vast improvements in sound quality.
  • The Series 2 version of Apple Watch was also expected, but Apple has finally engineered enough power savings to include GPS functionality, although iPhone tethering is still required for connectivity (texts, internet, etc.). This should open up some key new use cases - particularly hiking/running as it further deepens its focus on the health/wellness use case "sweet spot". Further emphasizing the point, Apple is also launching a Nike + version, co-designed with Nike and loooking like a Nike Watch with new software specifically geared toward running. Based on Cowen's Consumer Tracker Survey data, Nike and its ecosystem has >30% share among users of wearables for exercise versus ~20% for AAPL. If even ~1/3 of this Nike ecosystem converts to Apple, this would theoretically increase Apple's share among this user base by ~50% (Apple might not even be paying Nike much if any of this incremental revenue). Overall, we continue to model Apple Watch units growing from ~13-14MM in C2016 to ~35MM by C2018.

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