UBS Cautions on Flat iPhone Cycle

UBS analysts, focusing on iPhone demand, reported this week that data suggests a flat iPhone cycle for Apple (NASDAQ:AAPL). Prior to and following Apple's recent quarterly earnings report, the market began to anticipate a recovery in iPhone unit demand, spurred by enthusiasm around AI as a positive factor. UBS noted that the market expects AI capabilities and functionalities announced at WWDC in June to drive a refresh cycle. This shifted sentiment from cautious in early April to much more optimistic by mid-May.

Despite this improved sentiment, UBS's supply chain checks, including iPhone build rates, along with an analysis of Apple's inventory and manufacturing purchase obligations, indicate a prolonged challenging demand environment and a subdued cycle. Recent checks suggest iPhone procurement for 2024 to be between 218-227 million units, slightly up from 2023 but below the build rates of 2021 and 2022.

Additionally, by the end of March 2024, Apple's inventory and MPOs were $40.4 billion, down 16% year-over-year, or about 14% of the projected next 12-month Product revenue estimate.

Therefore, UBS forecasts iPhone revenue to increase by 4% in the September and December quarters combined (compared to the consensus of 2% growth). However, they believe a strong iPhone 16 cycle is unlikely despite the AI enthusiasm leading up to WWDC.