Apple reported a strong FY1Q (CY4Q20) with EPS of US$1.70 (+35% YoY) and revenue of US$111.4bn (+21% YoY), which are 8% and 20% above consensus, driven by strong cycle of iPhone 12, Mac/iPad demand on WFH trend, robust Greater China sales and GPM beat. Looking into FY2Q, we think mgmt. FY2Q guidance was mixed: 1) solid revenue growth with typical seasonality, and 2) deceleration of services and wearables on high base and AirPods inventory destocking. We expect near-term profit taking on slower service/wearables, but we remain positive on Apple supply chain over Android camp in 2021, given 5G iPhone cycle, share gain from Huawei and iPad/ Watch momentum. We reiterate Buy on BYDE for share gain in iPad/Watch, FIT Hon Teng for Belkin accessories, and Luxshare/Goertek as wearables suppliers.
- Strength across all segments and regions; all-time high installed base. Key highlights from earnings call include 1) iPhone revenue rebounded 17% YoY (vs -21% in FY4Q) driven by iPhone 12 cycle, Pro/Max models with higher ASP and global 5G network upgrade, 2) China/Japan revenue accelerated with 57%/33% YoY (vs -29%/-1% in FY4Q), 3) strong Mac/iPad (41%/21% YoY) boosted by WFH demand, new iPad Air and M1-equipped Mac, 4) solid service growth (+24% YoY) continued, 5) all-time high installed base of active devices (1.65bn total, 1bn+ iPhone), and 6) supply shortage (esp. iPhone) to alleviate in next quarter.
- Expect 5G iPhone cycle to persist into 2021. We expect iPhone shipment to maintain strong momentum with 36%/36% YoY to 50mn/51mn in CY1Q/ 2Q21E. We expect further upside if overseas carriers (e.g. US, Europe) accelerate 5G network rollout and boost 5G subscriber penetration by offering attractive subsidy or trade-in plans. In addition, cheaper 5G iPhone SE in 2Q21E and iPhone 13 (all w/ ToF) in 3Q21E will bode well for market share gain amid Huawei weakness.
- Service/Wearables to return strong growth in 2H. Although mgmt. guided weaker service/wearables for next quarter, we think Apple’s 1.65bn installed base has established a solid foundation for replacement demand of new product pipeline this year (e.g. 2 AirPods, 5G SE, iPhone 13, AR/VR Glass).
- Prefer BYDE, FIT, Luxshare and Goertek for wireless/ wearables trend. Since most components will be under ASP pressure due to higher 5G-semi BOM cost in iPhone 12, we prefer Apple names with share gain and wireless/ wearables beneficiaries. We reiterate Buy on BYDE for share gain in iPad/ Watch OEM/components, FIT Hon Teng for Belkin accessories (TWS/ wireless charger), and Luxshare/Goertek as wearables suppliers.
