As anticipated, Apple's event today featured two new Apple watches and two new iPads. In addition, Apple launched Apple Fitness+ and a bundled Apple service for individuals and family. We believe expansion of watches and services is integral part of its strategy to expand TAM and engage iPhone users to Apple ecosystem, and upcoming iPhone 12 launch in mid-Oct will stimulate pent-up demand for 5G replacement cycle. We continue to favor Apple supply chain over Android camp, and reiterate Buy on Luxshare for AirPods/Watch OEM/SiP/ wireless charging and BYDE for iPad assembly and Watch components.
- Apple Watch 6 and SE: new health sensor and Family Setup to expand TAM. Apple Watch 6 features a new Blood Oxygen sensor and an upgraded S6 SiP processor with 20% faster than prior-gen, while Watch SE comes with same accelerometer, gyroscope and always-on altimeter as Series 6, and features a S5 processor with 2x performance vs Series 3. watchOS7 also includes a new Family Setup feature that parents can pair multiple watches with their iPhone in order to stay connected with their children or older parents without iPhones. Series 6 starts at $399 (similar to Series 5) and entry-level SE launched at $279 (vs old Series 3 at $199). With ~10% of iPhone users having Apple Watch, we believe Apple continues to push its watches into healthcare device market and children market, and we expect Apple Watch to ship 32/38mn in 2020/21E (vs 31mn in 2019).
- iPad 8 and new iPad Air: new A14 chip launched. Apple also refreshed the iPad 8th-gen with faster processor, better display/camera and improved battery life, while the new iPad Air features an edge-to-edge display, new A14 Bionic chip (5nm) with 40% faster processing and an integrated Touch ID into the top button. The iPad 8th-gen starts at $329 (similar to prior-gen, $299 for education) while iPad Air launches at $599 (vs $499 for prior-gen).
- Expect strong 5G iPhone cycle in 4Q20-1H21E. We maintain our view that iPhone 12 will be delayed to mid-Oct given supply chain disruption in 1Q20. We anticipate four new 5G iPhones in Oct: a 5.4’ OLED model (dual-cam), a 6.1 OLED model (dual-cam), a 6.1’ OLED model (tri-cam + LiDAR) and 6.7’ OLED model (tri-cam + LiDAR). We estimate iPhone shipment will decline 3% YoY in 3Q20E and then rebound 2%/36% YoY in 4Q20E/1Q21E.
- Prefer Luxshare and BYDE for strong outlook and earnings visibility. We believe 5G iPhone launch delay is widely anticipated, and supply chain recovery will be boosted by channel restocking ahead of iPhone launch. We reiterate Buy on Luxshare (67% Apple rev. in 2021) given AirPods/watch momentum and BYDE (33% Apple rev. in 2021) for share gain in iPad/Watch.