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The author is an analyst at KB Securities. He can be reached at [email protected]. – Ed.
New iPhone to support 5G connectivity
On October 13, Apple will introduce its first line of iPhones that support 5G connectivity. The premium model will run on the ultra-fast 5G mmWave network, a feature rival Samsung Electronics does not yet have for its smartphones. The iPhone 12 will come in four models: iPhone 12 Mini (5.4 “), iPhone 12, iPhone 12 Pro (6.1”) and iPhone 12 Pro Max (6.7 “). All models will feature OLED panels, which was not the case with the iPhone 11. The iPhone Mini and iPhone 12 will have 4GB of RAM (as with the iPhone 11 series), and the iPhone 12 Pro and iPhone 12 Pro Max will have 6 GB of RAM. Since OEM Foxconn has recently switched to full production capacity, we expect the smartphone to launch this month. Shipments are expected to reach 100 million units in the first six months, representing a 19% increase compared to the launch of the iPhone 11.
The iPhone 12 will succeed despite concerns
Apple should successfully address the main risk factors:
(1) There have been concerns that China may boycott iPhones in the wake of recent US government sanctions against Chinese companies, but we believe the impact will be minimal. In fact, Apple’s share of the Chinese smartphone market increased after the trade dispute between the United States and China arose (6.8% in 1H19 → 9.5% in 1H20). The action of the US government against WeChat may imply some pushback, but not to the extent that the US would ban WeChat from app stores; According to a US court file dated September 28, there is no evidence that TikTok and WeChat pose a sufficient national security threat to justify a ban in the United States.
(2) Although Apple specification updates (e.g. cameras, display, memory and telecom chips) and 5G connectivity have led to increases in production costs, we expect the company to maintain or reduce wholesale prices by minimizing product bundling (eg, eliminating phone charger and headsets). Recently, Apple’s strategy has focused more on high-margin / high-growth services and wearable devices, so we believe that maximizing sales volume will take precedence over safeguarding margins.
(3) Over the years, Apple’s high-end pricing policy and the lack of substantial differentiation of iPhone models have deterred users from buying newer iPhones. For example, sales volume fell from 110 million in 2016 to 70 million units in 2018 (based on six months after launch). We believe that a large number of older models have not been replaced for some time, so there should be a strong demand for replacement for the next iPhone model this year.
LG Innotek, ITM Semiconductor and BH to benefit
We estimate that Apple’s smartphone shipments will total 190 million units by 2020, in line with 2019 (-0.2% year-on-year). The COVID-19 pandemic slowed H1 2020 shipments (-8% YoY), but full-year performance should hold up well thanks to the launch of iPhone 12. Additionally, there should be a double boost from the decline in Huawei’s global market share following trade sanctions from the US government, as well as declining Chinese companies’ share of the Indian smartphone market amid the India-China border dispute. In this context, we maintain our positive view on the major iPhone component manufacturers LG Innotek (011070 KS), ITM Semiconductor (084850 KS) and BH (090460 KS), all of which will benefit.
