Apple Suppliers Upbeat On iPhone 5 Components: Morgan Stanley

Apple Suppliers Upbeat On iPhone 5 Components: Morgan Stanley
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A report from Morgan Stanley (NYSE:MS) confirms a bullish outlook for iPhone 5 and a launch of iPad mini in the fourth quarter of 2012, or in the first quarter of the coming year. The report’s revised outlooks are based on the meetings with supplier/distribution partners in Asia. The report further states that if the success of iPhone continues in 2013, then “we see estimates moving toward our bull case of $80 EPS, and $960 valuation.”

Apple Suppliers Upbeat On iPhone 5 Components: Morgan Stanley

In line with the huge pre orders for the iPhone 5, released last week, suppliers and carriers are quite optimistic on iPhone 5 demand. The preorders for iPhone 5 rose +100 percent year on year vs. + 67 percent for iPhone 4S. If the component constraints are removed, then iPhone could “buck normal seasonal trends in C1Q13, setting up for 200M+ iPhone shipments in 2013”, as per the report from Morgan Stanley.

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Morgan Stanley (NYSE:MS) expects Apple Inc. (NASDAQ:AAPL) to come up with the lower priced iPad Mini in the fourth quarter of 2012, or in the first quarter of 2013. The report expects the new iPad to account for almost 35 percent to 40 percent of the total iPad shipments; as a result report reduces its “C4Q and CY13 ASP to $483 and $468, respectively.” Factoring the upcoming launch of iPad mini and present wave of excitement for iPhone, Morgan Stanley lowers its estimates of the near-term iPad shipments.

China will play a huge catalyst in strengthening the demand for Apple’s devices. The report expects China Unicom (Hong Kong) Limited (NYSE:CHU) to ship the iPhone 5 in December, which is a quarter earlier than the last iPhone cycle. The partnership with China Telecom Corporation Limited (NYSE:CHA), and a potential China Mobile Ltd. (NYSE:CHL) (HKG:0941) relationship in the second half of 2013 will help in improving the iPhone 5 cycle, when compared to iPhone 4S. To boost the demand further, China Mobile is stocking nano SIM cards that will allow users to enjoy iPhone 5 on their networks. The report states “iPhone 5 is compatible with TD-SCDMA, and TD-LTE, but it could take TD-LTE licensing and broader number portability to push through a formal distribution partnership.”

Apart from these short term catalysts, like iPad Mini, a cheaper iPad, and new iPad, the report highlights a few long term catalysts, like expanding store, online, and carrier distribution in China and other emerging markets, like Brazil. Larger tablet markets and continued Apple Inc. (NASDAQ:AAPL) market dominance drive the shipment upside. The potential Smart TV launch in 2013-14 also helps. The report also highlights a few investment risks like; CEO transition and executive departures, which raise concerns about long-term product roadmaps; Android and Windows competition in smartphones and tablets; and carriers continue to lengthen replacement cycles and begin to lower subsidies as smartphone penetration matures in developed markets; and regulatory and legal risks, as Apple Inc. (NASDAQ:AAPL) gains profit share momentum in mobile devices.

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