Next Tuesday, Apple (AAPL) will host an event thought to be the unveiling of the next iPhone. We'll see the media debate possible new features and fun things like colors. The big question becomes if the new iPhone can create a strong replacement cycle. Beyond the diehards that must own the latest and greatest tech, what will push recent buyers to upgrade their phone yet again? For those relying on 5G to push this cycle, I have some reservations. Marvell Technology (MRVL) showed us 5G coming on a bit earlier than expected, albeit via a Samsung (SSNLF) platform; however, management anticipated the upside might be as large as anticipated. On the plus side, the cycle should run longer than anticipated.
The takeaway: less ramp, more stability.
The stability sentiment has also been echoed by Wedbush and Keybanc recently. Both analysts noted expectations of iPhone stability with a midpoint remaining more positive than negative. It's a stark contrast to Nomura, who believes the market is too optimistic. We also have Longbow Research chiming about the impacts of tariffs as well. There are those pesky tariffs again.
Event or no event, Apple won't escape the issue of tariffs.
The impact appears to threaten wearables and home more than iPhones, and facing levies of 15% to 25% will pinch margins on this face growing category more than growth buyers are going to want to see. If you believe the tariff issue will be short-lived, then any dip because of the impact on margins could be seen as a buying opportunity; however, if the issue continues to drag, we're bound to see impact on EPS. Longbow Research targets $0.19 to $0.20 annually on Apple. In the big picture, this is less than 2% impact, so minimal in my opinion.
I'm more intrigued by Apple TV. The Apple TV+ priced around $9.99 appears to have the potential to offset the impact of tariffs in 2020 and 2021. Cowen estimates every 10 million subs will add $0.25 to EPS. The current projections put 2020 at 12 million subs and 2021 at 21 million subs. From what we've seen in the excitement around Disney+ (DIS) is I believe there is a thirst for different providers beyond Netflix (NFLX) , Amazon (AMZN) , and Hulu. Apple has 40 original programs under development with some big names attached. Also, if the early action in Disney streaming is any indication of alternative demand, those sub projections for Apple TV+ may be too conservative.
Apple has gotten so large in terms of market cap, events don't move the stock price as they once did. Still, I'm watching for a weekly close above $210 as a possible breakout trigger while a close under $198 would give us the opposite. 2019 has created one huge ascending triangle. Once broken, I foresee a $20 move on the trigger over the next 2-3 months, so something absolutely significant. Until we see a trigger, I'm in the camp of watching this one closely as the correlation has fallen away from the S&P 500 on a weekly basis; therefore, I expect something big in store for us soon.
(Apple, Marvell, Disney and Amazon are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AAPL, MRVL, DIS or AMZN? Learn more now.)
