Despite OLED and GM Concerns, All Bodes Well for Apple (AAPL) iPhone 8 Super Cycle - Credit Suisse

Credit Suisse analyst Kulbinder Garcha reiterated an Outperform rating and $150 price target on Apple (NASDAQ: AAPL) noting they are looking forward to the the iPhone 8 super cycle. While recent investor concerns have been centered around Gross Margins and OLED capacity for the iPhone 8, the firm ran an analyses on 3 potential scenarios, and have concluded that the EPS outlook remains strong no matter which route Apple takes.

On Gross Margins, Garcha believes Apple has the ability to circumvent this by increasing the ASP and/or improving the mix. They believe Apple will need to raise the ASP of the OLED iPhone 8 line by ~$50 and keep the mix new phones to ~35% (close to current levels) to keep iPhone GMs stable (assuming a $25 BOM increase from OLED).

On OLED concerns, they are optimistic that, given significant investment in increasing OLED production capacity, there should be adequate supply for up to 270mn iPhone units. On concerns if production capacity will be up to speed by launch, the analyst believes that Apple will likely pursue one of three product scenarios next year: (1) 2 iPhones, both OLED; (2) 3 iPhones, 1 OLED version; or (3) 3 iPhones, all OLED.

The analyst noted near-term checks are supportive. "Supply chain checks from our Asia team are supportive of iPhone strength, particularly around the mix," he said. "December quarter builds are expected to be 87mn, the highest quarterly build number we’ve seen historically. Additionally, the mix of the iPhone 7 Plus continues to be strong, with the 7 Plus expected to make up ~45% of the iPhone 7/7 Plus mix, materially higher than the ~35% we currently estimate."

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $109.11 yesterday.

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