Apple TV, iPad Pro Extend Long-Term Narrative for Apple (AAPL); Cowen Affirms at 'Market Perform'
Cowen and Company affirms its Market Perform rating and $130 price target on Apple (Nasdaq: AAPL) following the company's iPhone event on Wednesday.
Analyst Tim Arcuri commented, From a high level, the event was as expected with respect to what matters today - iPhone - with the introduction of Force Touch haptics from the Watch (3D Touch), a (much) better camera, and a better processor for 6S/6S+. The pricing (6S+ $299+, 6S $199+, 6+ $199+, 6 $99+, 5S free) and storage configurations (16/64/128GB) remain unchanged - a scenario that could drive some upward bias to iPhone ASP as the 12MP camera and 4k video could drive more upsell for both storage and screen size. To wit, our supply chain work suggests a more even 4.7/5/5" skew versus a mix more like 80/20 at this time last year. Overall, however, our field work continues to support two key iPhone-related conclusions: 1) 6S/6S+ will be the first iPhone generation to decline Y/Y making AAPL more reliant on price-reduced old model (in this case 6/6+) to grow units, and 2) it is hard to see upside to overall iPhone units for CQ4:15 or CQ1:16 as they are unlikely to grow Y/Y.
While iPhone was as expected, the real story of the event was a deeper push beyond the iPhone with the long-awaited introductions of a new Apple TV and 12.9" iPad (iPad Pro) - the former opening up the potential for a skinny network bundle offering down the road and the latter representing another strong push of its ecosystem into traditional compute. While in some ways similar to Microsoft Surface given a new detachable keyboard, iPad Pro (w/AAPL's custom 14/16nm ARM processor) seems ultimately likely to displace MacBook Air (running INTC Core i5) or even many professional use cases for MacBook Retina - all at comparable prices. In short, given INTC's Broadwell (and, as a result, Skylake) roadmap delays, the benchmarks for iPad Pro should come in significantly higher than all but AAPL's MacBook Pro mobile product line, meaning that an ARM based processor is now truly entering mobile compute replacement territory. As for Apple Watch, watchOS 2 (9/16 release) should be a key step in the product evolution as it enables 3rd party native apps and untethered WiFi. Ultimately, we remain bullish about the longer-term potential - particularly around health care use case - but the platform remains in its gestation period. Lastly, there was no update on Apple Pay, but this remains perhaps the most powerful mechanism to ultimately leverage the installed base and drive more HARDWARE sales of current and future form factors.
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