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Apple Could Show Dramatic Fall In iPhone 12 Margins

Summary The bill of materials for the latest iPhones has increased significantly due to 5G feature

Apple Could Show Dramatic Fall In iPhone 12 Margins

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{"i18n":{"language":"zh_CN"},"data":{"magic":2,"id":319917244,"tweetId":"319917244","gmtCreate":1611472577688,"gmtModify":1703750552203,"author":{"id":3574498839705644,"authorId":3574498839705644,"authorIdStr":"3574498839705644","name":"SHLee","avatar":"https://static.tigerbbs.com/9575f3766f23b8c7c9b5b9d7066d8ce7","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":0,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body>Nice[财迷]&nbsp;</body></html>","htmlText":"<html><head></head><body>Nice[财迷]&nbsp;</body></html>","text":"Nice[财迷]","highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/319917244","repostId":1106179554,"repostType":4,"repost":{"id":"1106179554","pubTimestamp":1611309447,"share":"https://www.laohu8.com/m/news/1106179554?lang=&edition=full","pubTime":"2021-01-22 17:57","market":"us","language":"en","title":"Apple Could Show Dramatic Fall In iPhone 12 Margins","url":"https://stock-news.laohu8.com/highlight/detail?id=1106179554","media":"seekingalpha","summary":"Summary\n\nThe bill of materials for the latest iPhones has increased significantly due to 5G feature ","content":"Summary\n<ul>\n <li>The bill of materials for the latest iPhones has increased significantly due to 5G feature and a better screen.</li>\n</ul>\n<ul>\n <li>Even if there is growth in unit iPhone sales within this cycle, the overall margins for the iPhone segment would be negatively impacted by higher bill of materials.</li>\n</ul>\n<ul>\n <li>Apple needs to show its capacity for EPS growth in order to sustain the current bullish momentum in the stock.</li>\n</ul>\n<ul>\n <li>A significant drop in iPhones margin can bring down the overall operating margin and could also lead to a drop in EPS hurting the stock sentiment.</li>\n</ul>\nApple(NASDAQ:AAPL)will face margin pressures due to the higher production cost of new iPhones. The iPhone bill of material or BoM has increased massively due to the 5G feature and better screens. This would end up hurting the margins. The buyback pacewill also fallas the company reaches a neutral cash position. Together, these two factors can negatively impact EPS in the next few quarters.\nAccording to Counterpoint Research,the bill of materialsfor iPhone 12 is 21% higher than iPhone 11. A shift from LCD to OLED ended by costing $23 more. 5G modem and RF system led to an increase in the cost by $34. Both these items are intrinsic to the iPhone 12’s attraction but the margins on iPhone 12 will be much lower than iPhone 11 due to these features. The iPhone segment still contributes over 50% of the revenue to Apple and a big drop in margins in this segment will have a negative impact on the overall margins and EPS over the next few quarters. Investors should closely look at the margin trajectory reported by the company over the next few quarters.\nImportance of Bill of Materials\nThe flagship iPhones are not only expensive to buy, but they are also expensive to build. The bill of materials for iPhones has always been quite high due to higher-end components. The BoM does not count the R&amp;D expense and marketing costs that Apple has to bear.\n<img src=\"https://static.tigerbbs.com/f5eb120e231572c55de63b9fd8f40ce5\" tg-width=\"822\" tg-height=\"404\">Figure 1: Features in iPhone 12 which led to cost increase and savings over iPhone 11. Source. Counterpoint Research\nWe can clearly see three big red bars in the above chart. They show the reasons for BoM increase in iPhone 12 compared to iPhone 11. The display system, RF components for 5G, and better A14 bionic chip led to a massive BoM increase in iPhone 12. After counting all the cost increases and savings, the BoM of the iPhone 12 increased by $72.5 according to this research note. This is a massive jump of 21% in BoM for iPhone 12 compared to iPhone 11.\nImpact on Margins\nApple has moved to a major revision once in three years. After iPhone X made a significant change in design in 2017, Apple was looking forward to a big change in 2020. This has been brought about by 5G features which are available on all flagship iPhones. However, this feature along with OLED screen has led to a big jump in BoM and the retail price increase has not kept up with the BoM growth. Compared to iPhone 11 which had a retail price of $699 with contract, iPhone 12 has a retail price of $799 with contract. This is a price growth of 14.2% which is lower than the growth in BoM.\nIn addition to BoM, Apple’s R&amp;D expense has been increasing which is due to higher design costs for the latest chips. Theincreasing competition with other tech giantsis also forcing Apple to invest heavily in R&amp;D compared to a decade back.\n<img src=\"https://static.tigerbbs.com/95bcae5f57407febfd836a95f97026bd\" tg-width=\"1073\" tg-height=\"551\">Figure 2: Apple's R&amp;D to Revenue expense has increased continuously over the past few years, squeezing the margins.\nThis trend will have a significant negative impact on the operating margin for Apple. The company’s operating margin has been declining for the past 20 quarters. With the recent jump in valuation multiple, a big drop in margins and EPS can bring about a correction in the stock.\n<img src=\"https://static.tigerbbs.com/b5600e70d2db88a215f8932bbbf00fb8\" tg-width=\"1077\" tg-height=\"551\">Figure 3: Price growth in Apple stock has mostly been on the back of higher PE valuation instead of fundamental metrics like EPS.\nWe can see in the above chart that Apple’s operating margin has been declining over the past three years. The growth in EPS has mostly been supported by a fall in outstanding shares due to massive buybacks. The net cash position of Apple is down to $79 billion. If the company continues to run a buyback program of $20 billion per quarter, the net cash position will fall rapidly in the near term.\nAt the same time, Apple’s PE ratio has increased by over 120% compared to three years ago. Currently, Apple’s PE ratio is over 40 which is the highest level it had been since the Great Recession.\niPhone 12 Pricing and Impact on Unit ShipmentsApple has increased the price of iPhone 12 to $799 with a contract. This is a 14.2% increase from iPhone 11 pricing. On the other hand, the BoM has increased by 21%. Apple has also increased its research expenses for building its own chips. Hence, we should ideally have seen a higher jump in retail price compared to BoM in order to maintain the margins. However, the inverse has happened where BoM has increased at a faster pace compared to the retail price. One of the reasons could be the more aggressive pricing by competitors like Google's Pixel.\nApple does not provide unit shipment figures and so we have to depend on third-party estimates.According to estimatesby Cinda Securities, the unit shipments for recent iPhones will be in the range of 230 million to 240 million. If this is true, it will be higher than iPhone 6 unit shipments of 222.4 million. According toanother model created by Cowen, iPhone shipments for 2020 stood at 193 million, down by 3% year-on-year while shipments for the calendar year 2021 will be 215 million.\nWith the latest pricing, Apple should certainly get a tailwind in terms of higher unit sales. However, the margins on each iPhone could dip significantly because of the rapid jump in BoM. Hence, even a 5-7% jump in unit shipments in 2021 will not be able to make up for the decline in margins due to higher BoM.\nCan We See a Correction in the Stock?\nThis is a trillion-dollar question in front of investors and Wall Street. Will Apple move to a market cap of $3 trillion as predicted byanalysts like Gene Munsteror will we see a correction to $1 trillion. Most of the price growth in Apple stock in 2020 was supported by a PE jump. This is unlike other tech majors like Amazon (AMZN) and Facebook (FB) who have shown a bull run in the stock price but have also delivered good growth in fundamental metrics of revenue and EPS.\n<img src=\"https://static.tigerbbs.com/f8fe5668a43f7874f4c2a823628a46bd\" tg-width=\"1077\" tg-height=\"559\">Fig: Comparison of Price change, PE ratio, EPS, and revenue between Apple, Amazon, and Facebook in 2020. Apple's stock growth was supported by only a higher PE ratio while Amazon and FB reported trailing twelve-month EPS growth of 48% and 36% respectively.\nIt is highly unlikely that Apple’s current valuation will be supported even if the EPS starts to fall. We should also see the pandemic being brought under control in the next few months as vaccination levels increase. Apple will not be able to gain a big tailwind due to buybacks as it is nearing the neutral cash position and with the current market cap the buybacks will not have a significant impact on the outstanding shares.\nGiven this situation, the massive jump in iPhone BoM becomes very important. A significant negative dip in iPhone margins will pull down the overall margins and EPS for the company. This will certainly hurt the sentiments around Apple stock and make it difficult for the company to sustain the current valuation levels.\nInvestor Takeaway\nThe latest iPhone cycle has seen a big jump in the bill of materials. New features like 5G, better chips, and expensive screens have increased the BoM of iPhones by 21% compared to iPhone 11. This increase in bill of materials will be a major headwind for Apple’s margins in the next few quarters. Even if the company is able to improve its unit shipments and revenue, we could see a dip in margins and even EPS.\nApple stock is trading at over 40 times its PE ratio, which is the highest valuation multiple it has seen in over a decade. Any negative EPS or margin numbers could reduce the bullish sentiment towards the stock and push the stock into correction territory. Investors need to weigh this aspect carefully before jumping into the stock at the current valuation level.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Apple Could Show Dramatic Fall In iPhone 12 Margins</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nApple Could Show Dramatic Fall In iPhone 12 Margins\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-01-22 17:57 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4400322-apple-show-dramatic-fall-in-iphone-12-margins>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nThe bill of materials for the latest iPhones has increased significantly due to 5G feature and a better screen.\n\n\nEven if there is growth in unit iPhone sales within this cycle, the overall ...\n\n<a href=\"https://seekingalpha.com/article/4400322-apple-show-dramatic-fall-in-iphone-12-margins\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"AAPL":"苹果"},"source_url":"https://seekingalpha.com/article/4400322-apple-show-dramatic-fall-in-iphone-12-margins","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1106179554","content_text":"Summary\n\nThe bill of materials for the latest iPhones has increased significantly due to 5G feature and a better screen.\n\n\nEven if there is growth in unit iPhone sales within this cycle, the overall margins for the iPhone segment would be negatively impacted by higher bill of materials.\n\n\nApple needs to show its capacity for EPS growth in order to sustain the current bullish momentum in the stock.\n\n\nA significant drop in iPhones margin can bring down the overall operating margin and could also lead to a drop in EPS hurting the stock sentiment.\n\nApple(NASDAQ:AAPL)will face margin pressures due to the higher production cost of new iPhones. The iPhone bill of material or BoM has increased massively due to the 5G feature and better screens. This would end up hurting the margins. The buyback pacewill also fallas the company reaches a neutral cash position. Together, these two factors can negatively impact EPS in the next few quarters.\nAccording to Counterpoint Research,the bill of materialsfor iPhone 12 is 21% higher than iPhone 11. A shift from LCD to OLED ended by costing $23 more. 5G modem and RF system led to an increase in the cost by $34. Both these items are intrinsic to the iPhone 12’s attraction but the margins on iPhone 12 will be much lower than iPhone 11 due to these features. The iPhone segment still contributes over 50% of the revenue to Apple and a big drop in margins in this segment will have a negative impact on the overall margins and EPS over the next few quarters. Investors should closely look at the margin trajectory reported by the company over the next few quarters.\nImportance of Bill of Materials\nThe flagship iPhones are not only expensive to buy, but they are also expensive to build. The bill of materials for iPhones has always been quite high due to higher-end components. The BoM does not count the R&D expense and marketing costs that Apple has to bear.\nFigure 1: Features in iPhone 12 which led to cost increase and savings over iPhone 11. Source. Counterpoint Research\nWe can clearly see three big red bars in the above chart. They show the reasons for BoM increase in iPhone 12 compared to iPhone 11. The display system, RF components for 5G, and better A14 bionic chip led to a massive BoM increase in iPhone 12. After counting all the cost increases and savings, the BoM of the iPhone 12 increased by $72.5 according to this research note. This is a massive jump of 21% in BoM for iPhone 12 compared to iPhone 11.\nImpact on Margins\nApple has moved to a major revision once in three years. After iPhone X made a significant change in design in 2017, Apple was looking forward to a big change in 2020. This has been brought about by 5G features which are available on all flagship iPhones. However, this feature along with OLED screen has led to a big jump in BoM and the retail price increase has not kept up with the BoM growth. Compared to iPhone 11 which had a retail price of $699 with contract, iPhone 12 has a retail price of $799 with contract. This is a price growth of 14.2% which is lower than the growth in BoM.\nIn addition to BoM, Apple’s R&D expense has been increasing which is due to higher design costs for the latest chips. Theincreasing competition with other tech giantsis also forcing Apple to invest heavily in R&D compared to a decade back.\nFigure 2: Apple's R&D to Revenue expense has increased continuously over the past few years, squeezing the margins.\nThis trend will have a significant negative impact on the operating margin for Apple. The company’s operating margin has been declining for the past 20 quarters. With the recent jump in valuation multiple, a big drop in margins and EPS can bring about a correction in the stock.\nFigure 3: Price growth in Apple stock has mostly been on the back of higher PE valuation instead of fundamental metrics like EPS.\nWe can see in the above chart that Apple’s operating margin has been declining over the past three years. The growth in EPS has mostly been supported by a fall in outstanding shares due to massive buybacks. The net cash position of Apple is down to $79 billion. If the company continues to run a buyback program of $20 billion per quarter, the net cash position will fall rapidly in the near term.\nAt the same time, Apple’s PE ratio has increased by over 120% compared to three years ago. Currently, Apple’s PE ratio is over 40 which is the highest level it had been since the Great Recession.\niPhone 12 Pricing and Impact on Unit ShipmentsApple has increased the price of iPhone 12 to $799 with a contract. This is a 14.2% increase from iPhone 11 pricing. On the other hand, the BoM has increased by 21%. Apple has also increased its research expenses for building its own chips. Hence, we should ideally have seen a higher jump in retail price compared to BoM in order to maintain the margins. However, the inverse has happened where BoM has increased at a faster pace compared to the retail price. One of the reasons could be the more aggressive pricing by competitors like Google's Pixel.\nApple does not provide unit shipment figures and so we have to depend on third-party estimates.According to estimatesby Cinda Securities, the unit shipments for recent iPhones will be in the range of 230 million to 240 million. If this is true, it will be higher than iPhone 6 unit shipments of 222.4 million. According toanother model created by Cowen, iPhone shipments for 2020 stood at 193 million, down by 3% year-on-year while shipments for the calendar year 2021 will be 215 million.\nWith the latest pricing, Apple should certainly get a tailwind in terms of higher unit sales. However, the margins on each iPhone could dip significantly because of the rapid jump in BoM. Hence, even a 5-7% jump in unit shipments in 2021 will not be able to make up for the decline in margins due to higher BoM.\nCan We See a Correction in the Stock?\nThis is a trillion-dollar question in front of investors and Wall Street. Will Apple move to a market cap of $3 trillion as predicted byanalysts like Gene Munsteror will we see a correction to $1 trillion. Most of the price growth in Apple stock in 2020 was supported by a PE jump. This is unlike other tech majors like Amazon (AMZN) and Facebook (FB) who have shown a bull run in the stock price but have also delivered good growth in fundamental metrics of revenue and EPS.\nFig: Comparison of Price change, PE ratio, EPS, and revenue between Apple, Amazon, and Facebook in 2020. Apple's stock growth was supported by only a higher PE ratio while Amazon and FB reported trailing twelve-month EPS growth of 48% and 36% respectively.\nIt is highly unlikely that Apple’s current valuation will be supported even if the EPS starts to fall. We should also see the pandemic being brought under control in the next few months as vaccination levels increase. Apple will not be able to gain a big tailwind due to buybacks as it is nearing the neutral cash position and with the current market cap the buybacks will not have a significant impact on the outstanding shares.\nGiven this situation, the massive jump in iPhone BoM becomes very important. A significant negative dip in iPhone margins will pull down the overall margins and EPS for the company. This will certainly hurt the sentiments around Apple stock and make it difficult for the company to sustain the current valuation levels.\nInvestor Takeaway\nThe latest iPhone cycle has seen a big jump in the bill of materials. New features like 5G, better chips, and expensive screens have increased the BoM of iPhones by 21% compared to iPhone 11. This increase in bill of materials will be a major headwind for Apple’s margins in the next few quarters. Even if the company is able to improve its unit shipments and revenue, we could see a dip in margins and even EPS.\nApple stock is trading at over 40 times its PE ratio, which is the highest valuation multiple it has seen in over a decade. Any negative EPS or margin numbers could reduce the bullish sentiment towards the stock and push the stock into correction territory. Investors need to weigh this aspect carefully before jumping into the stock at the current valuation level.","news_type":1},"isVote":1,"tweetType":1,"viewCount":496,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"CN","currentLanguage":"CN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"upFlag":false,"length":10,"xxTargetLangEnum":"ZH_CN"},"commentList":[],"hasMoreComment":false,"orderType":2}