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Apple iPhone: Some holiday sales ‘are already lost,’ analyst says

Oppenheimer Senior Analyst Martin Yang joins Yahoo Finance Live to discuss Apple's iPhone production challenges, whether Apple is still a defensive stock, and Elon Musk's Twitter spat with the tech giant.

Video transcript

BRAD SMITH: Welcome back Apple's iPhone Pro production is set to take a hit due to ongoing disturbances at a key manufacturing plant in China, that's according to Bloomberg, and could impact as many as 6 million units of the device. Joining us now to discuss the financial future implications for Apple is Oppenheimer Analyst Martin Yang.

Martin, great to have you here with us today, and thanks for taking the time. First, when you think about what this near-term impact could look like for Apple given the disruptions in production, you know, what do you kind of ballpark that figure to be right now?

MARTIN YANG: Sure. Yeah, some of the back of the envelope math suggests that when we consider loss of capacity in November and December, if we factor in a 30% loss in a single month, that would translate to 3 and 1/2 to 4 million units of shortfall in the production of iPhone Pro, 14 Pro, and Pro Max.

If that loss of capacity expands to 50% for single month, that translates to over 6 million units. And so far, our base case is a 30% loss of capacity. But based on recent development, it seems that that loss of capacity may sustain throughout November and maybe extending into December.

JULIE HYMAN: Martin, you, like many analysts, though, are also saying that they'll then make up that capacity, right, early next year. But if they don't make it up till early next year, what are the implications for the holiday season? Is Apple going to take a hit to sales because people are going to want to buy the phones and won't be able to get them?

MARTIN YANG: So the loss of holiday sales is already happening. And as when I checked last week and the earliest date you could get your hands on iPhone Pro and Pro Max in the US, as well as in China, is well after Christmas. I think the earliest day was end of December.

And so now you're out of luck if you try to get an iPhone by Christmas. So the earliest you can get it will be sometime in January. The holiday sales is already-- some portion of holiday sales is already lost.

BRIAN SOZZI: Martin, is Apple, at this point, just a Teflon stock? If concerns about iPhone shortages this holiday season isn't going to take the stock down, if recession fears aren't going to take the stock down, what could take the stock down?

MARTIN YANG: I think there are two main issues lying ahead of Apple for 2023. Number one is we've seen two years of very strong upgrade and replacement cycle for iPhone starting from iPhone 12, iPhone 13, iPhone 14 this year, and that replacement cycle strength may weaken into '23 by two factors. One is the majority of the install base is most likely to upgrade has already a new iPhone.

And then continued macro pressure will cause certain groups of consumers to delay their upgrade. And then secondly, there are ongoing pressure regarding Apple's services software revenues. For example, if Apple is forced to reduce its App Store tick rate down from 30% to 15%, that could have some temporary downward pressure on Apple's margin, as well as revenue.

BRAD SMITH: Do you see any consumers looking across the rest of the Apple ecosystem and saying, you know what, I don't need another watch, or I don't need an iPad or the wearables? How might this also impact other elements of that broader just hardware ecosystem that they have, but also the services that are reliant on that install base continuing to increase?

MARTIN YANG: I think those individual pockets of consumer sentiment have a rather insignificant impact on overall Apple's results because Apple is still seeing very robust number of percentage of new consumers come into the ecosystem through Apple Watch, iPad, and MacBook. And those are very good leading indicator of future growth of its software and service revenues. So as long as we are still seeing those healthy, fresh users come into the system, I'm not that worried.

JULIE HYMAN: Martin, I want to switch gears and turn the topic to Twitter for a moment and Elon Musk's seemingly new war with Apple and with Tim Cook over the App Store over what he says is Apple not being on the side of free speech. Apple-- I think it's pretty well-known what Apple requires for app developers to be on the App Store.

What do you-- and also, I think it's fair to say, safe to say, Twitter needs Apple a lot more than Apple needs Twitter. But what do you make of this? Is this just a blip? Is this something that investors don't need to pay attention to?

MARTIN YANG: I think investors does needs to pay attention to this spat between Elon Musk and Apple. It points to two major issues. Number one is Apple's standards of content moderation for apps going through its App Store. Number two is, is Apple entitled to the 30% App Store fees?

The first issue is much more complicated because if you look across Twitter in this, I would say power struggle between Twitter the app and Apple as a platform, Apple does have a lot more power over Twitter because the content available on Twitter is not up for scrutiny, and some of the content is-- I think Apple will be able to make the case that some of the content is distasteful and anywhere from the spectrum of distasteful and dangerous.

So if Apple wants, I think Apple could make the case to remove Twitter off its platform. And also considering Twitter has a reduced staff over content moderation and that is putting Twitter the app up for more risk going forward.

And then in the topic of the 30% App Store fees, I think that is endangering Twitter's move over the subscription plan as it wants to have the blue check mark at $8 per month that Apple is eligible to charge anywhere between 15% to 30% fees from that subscription if done over the in-app purchase. And I think Twitter is less at risk because a lot of the users are using Twitter through PC and other non-mobile platform or non-mobile channels.

BRAD SMITH: How much of this is also Apple posturing itself given that they've got a digital advertising business that they're trying to ramp up and continue to allow to compete given the install base that they have, but as well the number of advertisers and marketers that realize where in the funnel Apple's users sit within that kind of broader marketing ecosystem too and the purchase decisions that they can make more readily?

MARTIN YANG: Now, in terms of direct competition in digital advertising, I think there is maybe less overlap between Twitter and Apple. Apple is going after a lot of the app stores and a lot of the programmatic advertising, and also search ads on App Store, whereas Twitter has a much bigger exposure brand advertising, so that's a market Apple currently doesn't really play a big role in.

JULIE HYMAN: Martin, thank you so much. Really great to get your perspective on this. Oppenheimer Senior Analyst Martin Yang.