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As per Morgan Stanley analysts, over one-third of the worldwide sold iPhones are available for upgrade and the upcoming iPhone 12 could fill the void making the cash ball rolling-in for Apple.
Just as the Apple Inc (NASDAQ: AAPL) valuation managed to soar past $2 trillion, Morgan Stanley has an interesting observation to make. Just ahead of the launch of the next Apple flagship iPhone 12, Morgan Stanley said that Apple holds “significant iPhone upgrade potential” in China.
China remains one of the biggest Asian markets for the Cupertino-based tech giant. In fact, China’s rising sales of the newly released affordable iPhone SE helped Apple meet its sales targets in Q2 2020. Despite this, Apple holds the good potential to push its next flagship in the China market.
Currently, over 68% of the iPhone install base in China has devices that are over 2 years old. This is up by 8% over the last year and 20% since 2017. Morgan Stanley is quite bullish on Apple for the next four years. In a note to investors, it wrote:
“In our view, this speaks to the significant iPhone upgrade potential in China, the largest in at least 4 years, and helps support our bullish call that iPhone shipment growth can meaningfully accelerate in FY21 (fiscal year 2021).”
Morgan Stanley cites a number of factors for the next upgrade. This includes an introduction to 5G support, “improving affordability”, “expectations for stable pricing” for the next device, “increased adoption of trade-in and financing programs”, etc.
Apple (AAPL) stock has already surged 57% year-to-date defying all odds of the coronavirus economic slowdown. Apple continues to be one of the hot picks for Wall Street investors as analysts raise targets.
One-Third of Worldwide iPhone Products in the Window of Upgrade
In a note to investors earlier this month, analyst Daniel Ives of Wedbush Securities has already raised the AAPL stock target to $515. Ives said that the next flagship iPhone offers “once in a decade opportunity over the next 12-to-18 months. We estimate roughly 350 million of Cupertino’s 950 million iPhones worldwide are in the window of an upgrade opportunity.”
Speaking further about the China market, Ives wrote:
“China remains a key ingredient in Apple’s recipe for success as we estimate roughly 20% of iPhone upgrades will be coming from this region over the coming year. To this point we are seeing considerable strength from the China region over the last few months, a dynamic we expect to continue heading into the next 6 to 9 months.”
While holds massive potential in its $44 billion Chinese market, the political outlook doesn’t look good. There is some growing friction and rising tensions between the world’s two top economies. The Trump administration has released an executive order to ban WeChat in the country. This could potentially mean that Apple would most likely remove WeChat from its global App Store.
Well, if this happens, Apple can possibly face a major hammer-blow in the China market. Tencent‘s WeChat is the most popular and the go-to daily app for millions of Chinese locals. Potentially, the iPhone users in China could also give up their handsets if WeChat is taken down. It will be interesting to see further developments and how Apple manages to traverse through it.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
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