Morgan Stanley ups Apple target as TSMC sees 30% sales boost

Retail is still doing good business, eh?

Two big signs of health in Apple’s business – one of its biggest suppliers’ books record profits while Morgan Stanley raises price targets to $180 a share.

TSMC sees record revenue on biggest client

Let’s start with the supply chain. TSMC makes Apple’s processors for Macs, iPhones, iPads, and the company today revealed that sales revenue from “its biggest client” rose 30% year on year in 2022. TSMC revenue reached $17.31b.

Apple is thought to be the client concerned, so this is a good insight into the state of Apple’s business across the last 12-months.

TSMC is thought to be ready to ship new Apple chips based on 3nm process tech for use in this year’s crop of iPhones.

The looming and exciting 3nm upgrade

These devices are expected to deliver significant improvements in comparison to last year’s iPhones, according to a recent Digitimes report. They will offer longer battery life while also delivering more computational power than the chips used in iPhone 14.

These improvements will become even more apparent as Apple’s 3nm chips take the journey to appear in future Macs, though that probably won’t be until 2024.

One more item of interest to Apple supply chain nerds is that TSMC plans to open a chip production factory in Japan, its second. This is expected to be completed at some point after 2025, reports claim.

The catalysts are coming – Morgan Stanley ups estimates

Over to Morgan Stanley and a very positive client note from Apple analyst, Erik Woodring, seen by me suggests once again that some concerns concerning Apple’s business may turn out to be a little overanxious – particularly with a brand new product family set to reach he gate.

“History shows you want to own Apple stock 6-9 months ahead of key product launches, with Apple’s new AR/VR headset and the iPhone 15 launch both key upcoming catalysts,” they wrote.

Reasons for raising estimates

Morgan Stanley raised estimates for the first time in eight months from $175 to $180 per share, citing several key positives to Apple’s business.:

• Service adoption has once again begun growing more swiftly. They estimate this will grow around 10% this year,
• Record gross margins. “This analysis suggests to us that the decade high 43.5-44.5% gross margin guidance in the March Q is still 2-3 points below where we see gross margins peaking in the next 2 years.”
• Pent up demand for iPhone 15 – they predict 244 million shipments this year.
• The incoming Apple AR headset. “We believe Apple’s AR/VR headset launch (likely announced this summer), and the new iPhone 15 launch in September ’23 are key catalysts to help drive a re-rating in the stock toward our $180 price target,” they wrote.

The analysts also point to the launch of a potential Apple hardware subscription service, which they now speculate may come as early as next month.

“Today, Apple’s 1.2B user base spends an average of just $32 per user per month on all of Apple’s Products and Services combined ($28/month net), more than 50% below the average US cable bill, despite the Apple ecosystem representing the most important technology platform a consumer likely owns today,” they wrote.

Of course, all these positives are tempered with risks – over exposure in China, regulatory action, and Apple’s relationship with Google, which represents an estimated 20-25% of Apple’s services income, the analyst said.

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