Cowen Sees Apple's (AAPL) iPhone 7 as 'Bridge' to Upcoming Super-Cycle; Affirms at 'Outperform'

September 6, 2016 6:23 AM EDT
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Price: $118.25 +0.51%

Rating Summary:
    62 Buy, 8 Hold, 5 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 11 | Down: 23 | New: 30
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Cowen and Company offered initial thoughts on Apple's (Nasdaq: AAPL) iPhone 7 ahead of its upcoming launch. The firm rates Apple at Outperform with a price target of $125.

Analyst Tim Arcuri noted the following on Tuesday:

  • Features: Similar to the last few years, we expect two new versions, 4.7” and 5.5”. Both versions should come in 32/128/256GB storage capacity options (2x from iPhone 6S but opens the possibility that some 64GB iPhone 6S buyers revert back to 32GB) with 2GB DRAM for 4.7" and 3GB DRAM for the 5.5" version. We have long indicated that the 256GB version would be 3D NAND from Samsung, the first penetration of 3D NAND into consumer. Camera remains 12MP but significant improvement in optical processing, while 5.5" will be 12MP*2 employing a new structure that will eliminate the current protrusion and employ much more extensive optical zoom. Neither version will support wireless charging and we continue to believe that teardowns will ultimately show INTC taking 50%+ of units for baseband. Lastly, the home "button" will be accomplished with force touch technology rather than a mechanical button, thus closing a potential gap for water. Waterproof will be a big selling point from AAPL - though of course Samsung is already there - further enabled by the elimination of the headphone jack and integration w/the lightning port (maybe angering some who charge the phone while listening to music, but otherwise a positive development).
  • Unit Assumptions: Relative to units, we continue to see supply chain builds of ~48MM units for CQ3 (of which ~25MM are iPhone 7 and only ~4.5MM are iPhone 5S/6/6+) and ~71MM for CQ4 (of which ~52MM are iPhone 7 and only ~3MM are iPhone 5S/6/6+). Overall, we believe AAPL continues to proceed cautiously on builds give the downward revisions for iPhone 6S and most suppliers see, if anything, more upside bias to current builds once the product is in the market. We continue to model ~46MM unit sell-in for CQ3 and ~70MM unit sell-in for CQ4. While the extra week certainly helps, the builds remain at levels that make Street revs/EPS of ~$73.7B/$3.12 hard to see, barring upside revisions. Overall, we have long made this point even in the context of our installed base work suggesting a huge aging of the base that is occurring over the next 4-5Qs, setting up for the super-cycle we have been talking about in 2017 since our big 6/27/16 installed base note.

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