Tianfeng International analyst Mr. Guo released an Apple research report today that analyzes the potential risk scenario of the pneumonia outbreak on Apple’s supply and demand side. If the outbreak of the new coronavirus (2019-nCoV, also known as Wuhan Pneumonia) does not significantly improve by March, we believe that Apple’s supply and demand side may face the following uncertainties or potential risks.
1. Demand for iPhones and other Apple products is likely to fall short of expectations due to falling consumer confidence.
We note that consumer confidence declined significantly in mid-January after the outbreak of pneumonia, so although Chinese mobile phone shipments grew by about 5-10% in early January 2020 and improved the YoY recession, China’s mobile phone shipments in January 2020 are likely to continue the MoM and YoY decline. We believe that one of the main reasons for Apple’s better-than-expected cy4Q19 results is the recovery and growth of Chinese demand, but China and global consumer confidence may be adversely affected by the pneumonia outbreak and put Apple product shipments at potential risk of repair.
2. Estimates and timelines of apple 1H20 new products face potential risks due to delays in start-up times and absenteeism.
We believe that extending the Spring Festival holiday in China and imposing additional traffic restrictions may help improve the spread of pneumonia, but given that about 50% of Apple’s global production base in the supply chain is in China, this may also expose suppliers of new products expected to produce at 1H20 to potential production risks due to delays in start-up times and absenteeism, the most conservative scenario for shipment estimates and timing may be less than expected. We expect Apple’s key new hardware products in the 1H20 to include the 4.7-inch LCD iPhone, iPad Pro, MacBook Pro/Air, small wireless charging board, UWB label and high-order blue bud headphones.
3. Apple’s 2H20 new product verification process faces potential risks due to recent warnings from many countries about travel to China.
Many countries have recently warned of travel to China, which could affect Apple’s non-Chinese employees on business trips to China, with the most conservative scenario being the delay in the validation and mass production of 2H20 new products. If the pneumonia outbreak does not significantly improve in the foreseeable future, we predict that Apple’s possible solution is to delay the introduction of new materials or reduce component testing requirements to shorten the validation process and allow the release of new 2H20 products on time, with lower specifications or adverse material or component unit prices.
4. Apple’s new 1H21 product design schedule is at risk from the recent warning from many countries about travel to China.
We believe Apple will make key design decisions for 1H21 new products, including product blueprints and key specifications, but this requires very close cooperation between Apple and suppliers to ensure that the new product design meets Apple’s testing and mass production standards. If the pneumonia outbreak does not significantly improve in the foreseeable future, Apple’s non-Chinese employees travel to China will be affected, may affect Apple’s 1H21 new product development schedule.
5. People wear masks to prevent pneumonia infection, resulting in Face ID not functioning in a hostile experience.
Due to technical limitations, Face ID cannot operate when the user is wearing a mask. Although we had previously reported that the 1H21 new LCD iPhone would be equipped with a new designed capacitive fingerprint recognition scheme integrated with the side power buttons, we believe that this will improve the biometric experience of iOS devices (iPhone industry chain is the preferred investment in the electronics industry in 2020; 2020 and Key forecast for the new iPhone portfolio for 2021 (December 5, 2019). However, if the pneumonia outbreak does not improve significantly in the near term, it may have a negative impact on the user experience of existing iOS devices.