Apple's Supply Chain Is Stabilizing, BoA Says

BoA Merrill Lynch’s Wamsi Mohan maintained a Buy rating for Apple Inc. AAPL, with a price objective of $130. He mentioned that the Apple supply chain seems close to a bottom

The Apple supply chain in Asia recorded substantial iPhone order cuts from December to February, with the cuts having “overshot to the downside,” analyst Wamsi Mohan said. Some suppliers have inducated expectations of a marginally recovery in 2Q, from the depressed Q1 levels.

“The supply chain has confirmed the launch of the 4" iPhone and the newer iPad however volumes are expected to be relatively modest in the near term. The 4" model is not expected to have force touch,” Mohan wrote. The estimates for the March and June quarters have been raised from 48mn to 50mn and from 40mn to 44mn, respectively.

iPhone 7 Ramp

iPhone 7 is likely to begin ramping in late 2Q. “Our conversations suggest that launch timing will be similar to past years in September and mass production will be in 3Q with potentially some volume in late 2Q…There is an expectation of some growth in 2H versus 2015 by the supply chain consistent with our survey,” the analyst said. He added that Apple could launch an OLED-based iPhone earliest by 2017.

Apple Watch 2

Mohan expects the Apple Watch 2 to ramp in the summer and be available in the Fall of 2016. The watch is expected to be thinner, since it likely has a single piece of glass versus the prior version’s 2 sheets of glass. The analyst added, however, that volumes are expected to be meaningful only in the back half of the year, and the overall Watch 2 volumes in 2016 are likely to remain “relatively low.” The estimate for 2016 has been reduced from 22mn to 15mn.

Estimates Changed

The revenue and EPS estimates for F16 have been raised from $229.1bn to $229.8bn and from $8.96 to $9.03, respectively. The revenue and EPS estimates for F17 have been reduced from $263bn to $258bn and from $11 to $10.81, respectively.